The key macro event of the day during today's session in APAC markets was, in addition to the Fitch rating decision (see here), the RBNZ's decision on interest rates. The bankers' council decided that the OCR rate should be maintained at 5.5% (in line with market estimates). Although the reaction on the New Zealand dollar was not excessive, it was rather hawkish. This is due to comments in the minutes of the decision, which indicated the RBNZ's willingness to keep interest rates elevated before a longer period.
Below are the most important comments on the decision:
- Restrictive monetary policy helps ease capacity pressures to ensure inflation returns to target
- Commission agrees to maintain restrictive interest rates for an extended period. The decision should return inflation to a range of 1 to 3 percent this calendar year.
- Data show little change from assumptions presented in February
- Net migration continues to strengthen, supporting consumer spending and rising housing costs
- RBNZ points to declining business confidence indicators AND weakening outlook for business and investment by companies.
- New Zealand economic growth remains weak; but in line with bank forecasts
- Restrictive monetary policy stance remains necessary, however
The comments themselves come off as somewhat hawkish, but they do not seem likely to permanently alter valuations of the country's interest rate path. At this point, the swap market is pricing in 2.5 rate cuts of 25 basis points by the end of the year (most of which are not expected to come until late in the year).
The implied path of interest rates in New Zealand. Source: Bloomberg Financial LP
The RBNZ's hawkish stance slowly appears to be combating inflation and steering it toward target. Source: Bloomberg Financial LP
The NZDUSD pair is now testing an important resistance zone defined by the combination of the 50-, 100- and 200-day exponential moving averages. The reaction to this zone and a possible breakout above or below it could be key in the realm of sentiment analysis going forward. Source: xStation
