RBNZ statement & Rate Decision – Forex News Trading

The RBNZ announce their interest rate decision and release an accompanying statement outlining the reasons for their decision. On a quarterly basis they also release a Monetary Policy Statement. Unless there is a surprise change in the overnight rate, most of the market impact will come from the language in the statements. The RBNZ Statement and the MPS are the primary tools the RBNZ use to communicate with investors about monetary policy. They contain the outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, they discuss the economic outlook and offer clues on the outcome of future decisions.

Due:

June 10, 10:00pm BST

Frequency:

8 times/yr

Current: 3.50%
Expected: 3.50/3.25%

Source:

Reserve Bank of New Zealand

Summary

This rate decision has been highly anticipated with some analysts expecting a cut and others a hold. Arguments on both sides of the camp have logic. On one side of the coin, inflation is low and the current OCR is high. On the other side of coin, oil has large influence on this low inflation. However even core inflation in New Zealand is at 1% y/y. Several major investment banks are calling for two rate cuts this year, proposing the first one at this meeting. At the same time many other financial institutions are expecting RBNZ to wait until later in the year, some of them citing overheating housing.

Of 14 economists polled by Reuters, most are expecting rates to remain on hold. However a handful are predicting a cut to 3.25%.

Despite whether or not there is a cut, a lot of attention will turn to the statements. On this occasion there will also be the quarterly Monetary Policy Statement which will likely provide deeper insights into the RBNZ’s interest rate plans. Given how close the rate cut call is, there is a good chance that even if they don’t cut, they will indicate the likelihood of a cut at coming meetings.

Expected Market Reaction

We expect massive volatility from this release, regardless of the outcome. There are multiple combinations of outcomes to visualise. The rate decision could be a cut or unchanged. If there is a cut we will see an immediate spike lower in NZD. However, if there is not a cut we will likely see immediate upside, as the NZD has been sold off aggressively in the past fortnight on expectations of a cut. Therefore, a good part of the cut is already priced in. After the rate release, attention will turn to the statements. A dovish statement with a cut will see downside sustained. A dovish statement without a cut will see volatility, perhaps with a short-term rally before drifting lower later in the session, depending on the extent of dovishness. A neutral statement and a cut will likely see the the move lower retraced and a neutral statement without a cut will see NZD rally aggressively across the board. Helmets on.

Take a look at my weekly Forex news events overview here in order to learn more about interpreting the upcoming RBNZ statement data.

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