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RBNZ Keeps Rates Steady – Offering No Forward Guidance on NZ Dollar

Unsurprisingly the Reserve Bank of New Zealand kept rates on hold again, making the 19th consecutive interest rate decision without a change. The last coming back in November 2016 when rates were reduced from 2.00% to the current historic low interest rate of 1.75%, in turn seeing the USD to NZ Dollar exchange rate weaken.

Reserve Bank of New Zealand

This time, however, the USD to NZ Dollar rate jumped signalling potentially that 2018 could be another year where the RBNZ resist raising interest rates 0.25%.

Orr happy with growth and employment levels

Reserve Bank of New Zealand Governor Adrian Orr conceded that the RBNZ were content with growth. GDP in the last quarter did disappoint, underlining 0.6% growth against the forecast 0.8%. On an annualised basis reaching 2.9% against the forecast 3.1%.

Troubling factors which led to the subdued growth included hot weather having an impact on agricultural production. Dairy production and exportation also being affected. Despite some of the areas falling industrial and business services triumphed with property rental and services also performing well.

Last month employment figures grew by 0.6% shading its target of 0.5% up by 15,000 new roles, whilst unemployment remained at 4.4% the lowest in a decade. Annually employment grew by 3.1% in New Zealand.

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During a statement to financial press Governor Orr stated that:

“Economic growth and employment in New Zealand remain robust, near their sustainable levels. However, consumer price inflation remains below the 2% mid-point of our target due.’’

Mid-point inflation target remains at 2%

NZ inflation has been in line with the expectation this quarter coming in at 0.5%, equating to an uptick 1.1% over the year but weaker than the 1.6% achieved at the end of 2017. State led pricing influencing the weaker inflation with rises in tobacco and cigarette prices being offset by cheaper lower education tuition prices, which were lowered by 16% in March.

Higher prices were also seen in property services, and petrol contributing to the rise in CPI figures, whilst airfare pricing weakened.

RBNZ tight lipped of NZ Dollar sentiment

The RBNZ committee voiced no concern or discomfort around current NZ Dollar exchange rates indicating that the currency for the timing being requires no intervention for the time being. The 52-week trading range of the USD – NZ Dollar sits at 1.3226 – 1.4747, AUD – NZ Dollar 1.0356 – 1.1295 and the GBP – NZD 1.7331 – 1.9843.

NZ Dollar performance this week

Following the RBNZ rate decision and press conference GB Pound – NZ Dollar exchange rates rose from 1.9405 to 1.9530 sterling brief gain was eroded by the BOE decision and Carney’s comments the pair closing at 1.9446.

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GBP/NZD technical chart May 14 2018

The AUD/ NZD has enjoyed more sustainable gains this week capitalising on the central bank’s decision and accompanying statement. The pair rising from 1.0678 to 1.0754 and continuing to a week high of 1.0840. The Australian Dollar being brought by investors searching out value in riskier assets. The move occurred after investor flew to safe haven assets following Trump decision to tear up the Iranian nuclear deal.

AUD/NZD technical chart May 14 2018

Despite the move made by Trump on the Iranian nuclear deal the USD/NZD has enjoyed a clear sweep trading at a week low of 1.3532 and touching a high on 1.4469 less than a cent from the 52-week high which was seen in mid-November 2017.

USD/NZD technical chart May 14 2018

NZ Dollar forecast

The NZD has been the worst performing major currency this month performing terribly against a basket of currencies. Key data and events for NZD this week include governments, this will almost be scrutinised. With the investment of NZ $81 Billion being promised to the department of conservation over the next five years being planned. The new finance minister Grant Robertson is expected to take a more measured approach focusing on reducing net debt and encouraging business investment.

Due to the number of elements that could be covered in the new government’s budget, it is tricky to predict short-term volatility and potentially how the markets will interpret policies. In terms of economic data, the NZD only has two mid tear economic data releases, quarterly PPI (input and output) measuring the price of raw goods and materials both unlikely to rock FX markets.

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