What can we expect from the RBNZ monetary policy decision?
On Wednesday, October 28 at 01:00 GMT, the Reserve Bank of New Zealand (RBNZ), led by Governor Anna Breman, is expected to raise the Overnight Cash Rate (OCR) by 25 basis points, from 2.75% to 3%, as money markets price in a 100% chance.
A Reserve Bank of New Zealand (RBNZ) decision is anticipated on Wednesday at 01:00 GMT, where the bank's Governor Anna Breman and the Monetary Policy Committee (MPC) are likely to increase the Overnight Cash Rate (OCR) by 25 basis points, from 2.75% to 3%. This marks the third rate hike by the RBNZ, with the likelihood of another hike in December hovering around 50%.
The previous decision in September was unanimous, with the committee choosing to remove monetary stimulus to bring inflation closer to the 2% goal while fostering growth and the labor market. The rationale behind the rate increase is to reduce the potential for more drastic adjustments later while maintaining an open approach to future OCR adjustments.
Breman emphasized that the committee is pushing rates towards neutrality while remaining supportive. A rate hike would bring the OCR closer to the RBNZ's neutral range, and Breman noted that further OCR increases are probable, with the central bank ready to evaluate the impact of the hikes already implemented. Overall, the bank seems inclined towards additional rate hikes, though the exact timing remains speculative.
Recent economic indicators point to potential for additional OCR hikes. New Zealand's GDP in Q2 surpassed forecasts at 2.6% year-over-year, compared to the estimated 2.3%. However, the Q3 Consumer Price Index (CPI) slowed to 3.7% year-over-year, below the predicted 3.8%, yet still above the RBNZ's 2% inflation target. As of now, the NZD/USD exchange rate is trading at the bottom of its daily range between 0.5675 and 0.5708, awaiting reactions from both the RBNZ and the Federal Reserve.
Traders are eyeing the confluence of the 50-day and 100-day Simple Moving Averages (SMAs) at 0.5748 and 0.5769, respectively, if the RBNZ adopts a hawkish stance. If the New Zealand dollar (NZD) surpasses this area, a potential move towards 0.5800 is feasible. Conversely, a dovish signal from the RBNZ could lead to testing the 0.5650 and psychologically important 0.5600 levels, which have drawn the attention of traders. If the NZD weakens further, the year-to-date low of 0.5564 will come into play.
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