Five Dollar notes in New Zealand currency. Image source: Naruedom Yaempongsa © 123RF.com
The Reserve Bank of New Zealand is set to deliberate on its interest rate policy this Wednesday, and the initial market expectation is for the central bank to keep the rate at the current level of 1.75%.
There are, however, specific points of concern for investors, as the RBNZ stated in its previous post-decision statement on the 27th of March, that:
“Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down. […] Low-interest rates and continued employment growth should support household spending and business investment.”
The underlying unemployment rate has barely decreased since then with just 0.1%, and it is currently sitting at 4.2%, compared to the previous 4.3%, which was the rate that the RBNZ was referencing in its earlier statement. This change in the overall employment rate manifests the only redeemable improvement for the period since the last interest rate decision.
There was a sizable decrease in domestic spending, as the Inflation Rate for Q1 fell with 0.4% to 1.5% from the previous level of 1.9% for Q4 of 2018. This fall in the CPI level can be the decisive factor to weigh in on the monetary policy of the Reserve Bank and compel the chief economists in New Zealand to lower the interest rate.
As regards business investment, that is RBNZ’s third most vital indicator for considerations regarding its monetary policy, and the business confidence index has barely improved since March, which rose from -38.0 to -37.5.
Overall, the central bank is given enough incentives to seriously consider lowering the interest rate as soon as Wednesday, however, in case the central bank ultimately opts to maintain the rate as it currently is, it would be forced to caution against future decreases, and the NZD will become more prone to volatile reactions. After the last session, when the overall economic outlook was looking much better in general, the mere mention of a possible lowering of the OCR, compelled the NZDUSD to depreciate with 1.59%, thus allowing for even more drastic price swings this Wednesday, depending on how the RBNZ decides to react to the disappointing CPI data.
The NZD/USD currency pair is currently trading above the support level of 0.65820, which has already been tested on two separate occasions in the past. This significant level is also representing the bottom-boundary of a substantial range, that is currently continuing to develop, and Wednesday’s interest rate decision might test the strength of the range.
Image source: Trendsharks ©, created with TradingView.com
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