RBNZ Holds, Refrains From A Dovish Meeting; New Zealand Dollar Spikes
City Index | Nov 12, 2019 11:52PM ET
The Reserve Bank of New Zealand (RBNZ) held and refrained talking their currency down. The Kiwi dollar spiked higher across the board.
Official Cash Rate unchanged at 1 percent
Today’s hold caught markets and economists off guard. As of yesterday, 80% of economists polled expected a cut and markets were pricing in >85% chance of a cut, following a weak read on inflation expectations from RBNZ’s own survey. On that note, whilst markets focussed on inflation expectations of 1-2 years ahead, the minutes state that “long-term inflation expectations remain anchored at close to the 2 percent target mid-point” showing that, where CPI is concerned, they’re playing the long game.
Still, at -75bps over just 5 meetings, they could still be waiting for their actions to take effect on the economy. Furthermore, this means RBNZ have cut by -250bps since they last raised rates back in 2014 yet still have room to ease if they require.
However, the press conference was not dovish. During his speech, Adrian Orr stated “we have the ability to observe the data, knowing we’re providing plenty of monetary stimulus” after providing a “significant cut in August”. He also added that QE is not a tool that is currently part of their bigger plan. So, unless data is to deteriorate notably from here, perhaps the low is in at 1%. By the end of the press conference, markets were pricing in just a
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AUD/NZD: At the time of writing, it’s the most bearish session since September 2017. It’s daily range has also expanded over 200% of its 10-day ATR and is just above key support, so there is potential for mean-reversion over the near-term. Yet, given its failure to break above 1.084 and the potential that RBNZ are to hold rates at 1% from here, AUD/NZD could be overbought and poised to eventually break to new lows.
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