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The Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand has reached a consensus on early Wednesday in voting to keep the OCR rate unchanged in November.
The Committee has reviewed the most recent economic developments both domestically and also internationally.
Even though it was noted that global risks to growth remain to the downside and trade uncertainty remains high, the current economic circumstances do not warrant further reductions in the OCR at the current rate.
This decision prompted a surge in all NZD currency pairs, as the initial market forecasts projected a likely reduction of the interest rate by 0.25 basis points.
We cautioned you against these estimations in our Weekly Expectations update from Monday, in which we argued that not all economic indicators signal a reduction and also that:
“A more favourable business outlook is likely to prompt heightened business activity, which could prove sufficient for the MPC of the RBNZ to postpone any reductions until 2020.”
In its monetary policy statement, the MPC argued along similar lines, stating that growth is expected to pick up in 2020 prompted by heightened business activity:
“Domestic economic activity is expected to increase during 2020 supported by low interest rates, higher wage growth, and increased government spending and investment. The low level of the OCR has flowed through to lower lending rates more generally, which support spending and investment. Rising capacity pressures are projected to promote a pick-up in business investment.”
The decision to abstain from reducing the interest rate presently was also backed up by the strong performance of the domestic labour market and robust growth in wages – a trend that is observable worldwide.
Inflation remains subdued but within the Monetary Policy Committee’s long-term projections.
“Employment remains around its maximum sustainable level while inflation remains below the 2 percent target mid-point but within our target range.”
Overall, MPC’s decision to keep the interest rate unchanged means that the New Zealand Dollar will not suffer from speculative selling pressure in the immediate future.
The NZDUSD has been trading around the support level at 0.63300 for the past three days, and the pair bounced off from the level today, following the announcement of the monetary policy decision.
The price of the pair almost reached the next important level at 0.64260 before correcting some of those initial gains by tumbling to around 0.63900.
This behaviour of the NZDUSD matches our projections from Monday, as we argued that:
“Wednesday’s decision is likely to prompt heightened trading activity, which could subsequently cause the price to break out of the range’s boundaries.”
Currently, the price of the currency pair is attempting to break out above the 8-day Simple Moving Average on the daily chart.
NZDUSD1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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