RBNZ expected to keep key interest rate unchanged at 5.5% amid persistent inflation

• 
  The
  Reserve
  Bank
  of
  New
  Zealand
  is
  expected
  to
  keep
  rates
  on
  hold
  at
  5.50%
  on
  Wednesday.
• 
  Upside
  risks
  to
  inflation
  to
  offset
  economic
  concerns,
  prompting
  RBNZ
  to
  delay
  any
  dovish
  shifts.
• 
  The
  New
  Zealand
  Dollar
  gears
  up
  for
  intense
  volatility
  on
  the
  RBNZ
  policy
  announcements.

Following
its
July
monetary
policy
meeting
on
Wednesday,
the
Reserve
Bank
of
New
Zealand
(RBNZ)
is
set
to
hold
the
Official
Cash
Rate
(OCR)
at
5.50%,
extending
the
pause
into
an
eighth
meeting
in
a
row.

It’s
expected
to
be
a
straightforward
event,
with
no
press
conference
from
RBNZ
Governor

Adrian
Orr
and
the
release
of
updated
economic
projections.
However,
any
changes
to
the
RBNZ’s
communication
could
spark
a
big
reaction
in
the
New
Zealand
Dollar
(NZD).

What
to
expect
from
the
RBNZ
interest
rate
decision?       

With
discouraging
economic
performance
alongside
the
persistence
of
inflation
risks,
a
rates
on-hold
decision
by
the
RBNZ
is
widely
anticipated
by
market
participants.
Therefore,
they
will
look
for
fresh
hints
on
the
timing
of
the
dovish
policy
pivot
in
the
central
bank’s
Monetary
Policy
Statement
(MPS).

New
Zealand’s
annual
Consumer
Price
Index
(CPI)
increased
by
4%
in
the
first
quarter,
according
to
data
released
by
Stats
NZ,
following
a
4.7%
growth
in
the
12
months
to
the
December
2023
quarter.

Even
though
there
was
progress
in
disinflation,
the
non-tradable
inflation
remained
a
cause
for
concern.
Non-tradeable
inflation
was
5.8%
in
the
year
to
the
March
quarter,
a
tad
lower
than
the
5.9%
figure
seen
in
the
final
quarter
of
2023.

Meanwhile,
Stats
NZ
showed
on
June
19
a
0.2%
increase
in
GDP
in
the
first
quarter,
breaking
a
streak
of
quarterly
GDP
declines
that
had
led
to
the
country’s
recession
in
the
second
half
of
2023.

These
data
sets
are
likely
to
support
potential
delays
in
the
dovish
changes
to
the
policy
statement’s
language,
despite
some
analysts
arguing
against
them
amidst
declining
domestic
consumer
confidence
and
the
deepening
contraction
in
the
manufacturing
and
services
sectors.

ANZ
–
Roy
Morgan
New
Zealand
Consumer
Confidence
fell
to
83.0
in
June
from
the
previous
month’s
84.9,
sticking
close
to
multi-year
lows
in
the
sentiment
index.
The
Business
NZ
Performance
of
Services
Index
(PSI)
dropped
to
43.0
in
May
from
April’s
46.6
while
the
Business
NZ
Performance
of
Manufacturing
Index
(PMI)
contracted
to
47.2
in
May,
following
a
48.8
figure
in
April.

Previewing
the
RBNZ
policy
announcement,
analysts
at
TD
Securities
noted:
“While
there
are
signs
of
cracks
in
the
economy
(e.g.,
labor
market
easing,
contractionary
PMIs),
we
don’t
think
the
RBNZ
is
in
any
urgency
to
ease
given
the
upside
risks
to
inflation,
especially
from
services.”

How
will
the
RBNZ
interest
decision
impact
the
New
Zealand
Dollar?

The
NZD/USD
pair
is
on
the
front
foot
heading
into
the
RBNZ
showdown
on
Wednesday,
in
the
aftermath
of
the
US
Dollar
(USD)
demise
induced
by
Friday’s
US
labor
market
data
for
June.
The
downward
revisions
to
the
April
and
May
employment
data
prompted
investors
to
ramp
up
bets
that
the
US

Federal
Reserve
(Fed)
will
lower
interest
rates
in
September.

Furthermore,
expectations
that
the
RBNZ
will
refrain
from
making
any
dovish
tweaks
before
the
July
16
second-quarter
inflation
report,
help
the
pair
maintain
its
recent
upswing.

“Market
has
more
than
fully
priced
in
a
November
rate
cut,
with
60%
odds
of
an
earlier
cut
in
October,”
per
BBH
Analysts.

If
the
MPS
remains
wary
of
the
upside
risks
to
inflation,
in
the
face
of
sticky
non-tradeable
goods
and
services
inflation
alongside
the
May
Budget
release,
the
Kiwi
Dollar
could
see
a
fresh
leg
higher
to
the
June
high
of
0.6222.
On
the
other
hand,
NZD/USD
is
seen
falling
back
toward
0.6000
should
the
RBNZ
do
away
with
its
hawkish
guidance,
hinting
at
a
policy
pivot
later
this
year.

Dhwani
Mehta,
FXStreet’s
Senior
Analyst,
offers
a
brief
technical

outlook
for
trading
the
New
Zealand
Dollar
on
the
RBNZ
policy
announcements:
“The
NZD/USD
pair
is
consolidating
the
previous
week’s
recovery,
deriving
strength
from
a
bullish
14-day
Relative
Strength
Index
(RSI)
on
the
daily
time
frame.”

“The
next
bullish
target
for
the
Kiwi
is
seen
at
the
June
high
of
0.6222,
above
which
the
0.6250
psychological
level
will
challenged.
Further
up,
the
0.6300
threshold
will
be
in
sight.
Alternatively,
a
failure
to
defend
the
confluence
of
100-day
and
200-day
SMAs
at
0.6070
could
open
the
downside
toward
the
0.6000
level,”
Dhwani
adds.