AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Shorts Forced to Cover After RBNZ Holds Rates Steady

The RBNZ said that while inflation remained below the 2 percent target mid-point, economic developments since August did not warrant a change to “the already stimulatory monetary setting at this time”.
James Hyerczyk

The New Zealand and Australian Dollars are trading higher on Wednesday with the Kiwi leading the surge, following a surprise move by Reserve Bank of New Zealand (RBNZ) policymakers. Better-than-expected domestic data is helping to boost the Aussie with some of the push fueled by the surge in the Kiwi. Traders seem to be unfazed by the dimmed hopes for a near-term U.S.-China trade deal.

At 06:55 GMT, the NZD/USD is trading .6402, up 0.0073 or +1.16% and the AUD/USD is at .6846, up 0.0005 or +0.07%.

Reserve Bank Surprise: Official Cash Rate on Hold

The Reserve Bank of New Zealand (RBNZ) disregarded bank forecasts and elected to the Official Cash Rate (OCR) on hold at 1 percent. All the major banks had forecast a 25 basis point cut, with Westpac flipping back to the dovish side on Tuesday after the RBNZ reported a slight dip in business managers’ expectations of future inflation.

Prices spiked higher after the central bank announcement because a 25 basis point cut was largely priced into the lending and currency markets prior to Wednesday’s monetary policy statement.

Now that the RBNZ has decided instead to keep the OCR on hold, the major banks are going to be scrambling to reassess the outlook for next year.

The RBNZ said that while inflation remained below the 2 percent target mid-point, economic developments since August did not warrant a change to “the already stimulatory monetary setting at this time”.

It did, however, reiterate it remained “prepared to act as required”.

In a press conference after the monetary policy announcement, RBNZ Governor Adrian Orr said it was “certainly not the bank’s conscious intention” to try to surprise people.

“Market expectations have been moving around considerably”, from a cut being a 50:50 possibility to a 90 percent likelihood, he said.

Orr further added, “What we have made very clear is we believe monetary policy is very stimulatory and that we have to keep it at that position for a prolonged period of time – and that if circumstances change we will act.”

Central bank policymakers also noted “the risks to the economy in the near term were tilted to the downside.”

“Economic growth continued to slow in mid-2019 reflecting weak business investment and soft household spending,” the bank said.

“We expect economic growth to remain subdued over the remainder of the calendar year.”

RBNZ policymakers also commented on New Zealand’s robust export commodity prices and the low New Zealand Dollar price level, calling it “a useful additional offset to the weaker global economic environment.”

They further added, “Domestic economic activity is expected to increase during 2020 supported by low interest rates, higher wage growth, and increased government spending and investment. The low level of the OCR has flowed through to lower lending rates more generally, which support spending and investment.

Daily Forecast

Kiwi and Aussie traders could get a reality check later in the day with the release of a U.S. report on consumer inflation and testimony from Fed Chair Powell.

The U.S. Labor Department will release its Consumer Price Index (CPI) at 13:30 GMT. It is expected to show U.S. consumer prices rose 0.3% in October in October, and at a 1.7% annual rate. The higher the numbers the better for the U.S. Dollar.

Core CPI, which excludes volatile food and energy prices, are expected to have risen 0.2% in October, after a jump of 0.1% in September. This monthly estimate would be a 2.4% increase since October of last year.

Also on Wednesday, Federal Reserve Chairman Jerome Powell will speak to the Congressional Joint Economic Committee about the current economic outlook, starting at 16:00 GMT. Investors will be looking for additive details on the central bank’s current impression of the health of the economy after the Fed cut rates on October 30 and signaled it was nearing a pause.

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Latest Articles

See All

Expand Your Knowledge

See All
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.