• RBNZ leaves rates unchanged as broadly expected
  • RBNZ cuts the next year’s GDP and CPI forecasts
  • NZD weakens the most in G10 in the aftermath

The Reserve Bank of New Zealand chose to leave interest rates unchanged at its yesterday’s meeting as it was widely anticipated. The NZD spiked following the decision but a move to the upside was fairly quickly wiped off. A rise could have stemmed from the fact the a rhetoric of the central bank in terms of the ex-change rate was not so dovish as the market consensus had expected.

The most important remarks from the statement are as follows:

  • monetary policy will remain accommodative for a considerable period
  • a lower NZD is needed
  • longer-term inflation expectations remain well-anchored at around 2%
  • expects future headline inflation to reach the midpoint of the target band over medium-term
  • headline inflation is likely to decline in coming quarters
  • NZD has risen partly in response to weaker US dollar
  • 2018 CPI forecast was cut from 1.1% to 0.7%
  • 2019 CPI forecast was lifted from 1.9% to 2%
  • 2018 GDP forecast was slashed from 3.4% to 3.1%
  • 2019 GDP forecast was upgraded from 3.4% to 3.6%

link do file download linkUpdated macroeconomic projections from the RBNZ suggest lower inflation and economic growth in oncoming quarters. Source: RBNZ

Moreover, governor Wheeler along with assistant governor McDermott decided to jawbone the NZD slightly more which resulted in a more noticeable sell-off in the morning. Their most important commentaries:

  • see growth of more than 3% over coming years
  • lower NZD would be helpful, weak USD one reason it’s strong
  • struggled to get headline inflation higher mainly due to 4 years of negative tradables inflation
  • strong New Zealand economic growth has helped the NZD higher
  • don’t think a rate cut is needed to return inflation to 2%
  • RBNZ changed NZD language to signal unease
  • a change is first step towards possible intervention

Both remarks regarding the NZD have dragged the currency significantly down quite immediately. Although, the statement was not seen by markets as a strongly dovish, the subsequent remarks voiced by two the most influential people within the RBNZ have done their job. As a result, the New Zealand dollar is by far the worst performer among its G10 peers losing against the greenback as much as 0.9%. 

link do file download linkThe NZDUSD is declining following the RBNZ’s statement which has been enriched by dovish remarks coming from governor Wheeler and assistant governor McDermott. Source: xStation5

The pair is plunging following the decision and is eyeing the more relevant support zone placed at around 0.7190. That level is also underpinned by a 50% retracement of a recent upward move.