The Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand is going to hold a meeting on Wednesday to deliberate on its interest rate, also referred to as Overnight Cash Rate. The prevailing economic forecasts project a further reduction in the rate that is to be implemented shortly; however, the recent developments might compel the MPC to surprisingly abstain from cutting the rate as soon as this week.
As regards the labour market, the unemployment in New Zealand has decreased from 4.3 per cent in the first quarter of the fiscal year with 0.1 points to the current level of 4.2 per cent in the second quarter of 2019. The labour market exhibits resilience at these turbulent times, and even more so, it is managing to exploit all spare capacities and grow even at full-employment.
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Inflation, too, is demonstrating positive growth from 1.5 per cent in the first quarter to 1.7 in the second, which still leaves room for further improvements nearer the desired 2 per cent target-level; however, it does not necessitate any immediate and drastic actions by the MPC.
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The recently renewed escalation of the trade tensions between the US and China from last week might discourage the MPC from implementing any adjustments to the underlying monetary policy in this environment of global uncertainty. Instead, given the robust internal economic data, the governing body might be justified in opting to remain observing for the time being and keep on watching the situation as it develops. Meanwhile, the rate cut in May could turn out to be ultimately enough for achieving sustained growth in the near-term.
Similarly, to the previously analysed currency pair, the NZDUSD is currently trading on its eighth consecutive day of depreciation, and it too is trading around a major level of support (0.64880).
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