New Zealand Dollar in Holding Pattern Ahead of Reserve Bank Decision

04/04/2023

1 minute read

2023.04.04 08:33

MarketPulse

The New Zealand dollar is almost unchanged ahead of the Reserve Bank of New Zealand (RBNZ) rate decision on Wednesday (New Zealand time). The US releases Job Openings.

is trading quietly at the 0.63 line in the European session.

RBNZ expected to hike by 25 bp

The RBNZ is widely expected to raise rates by 25 basis points, which would bring the benchmark cash rate to 5.0%. Over the past year, the RBNZ has delivered oversize hikes of 50 and even 75 basis points, marking an aggressive rate-tightening cycle in order to contain red-hot inflation. The battle with inflation has been slow, as CPI came in at 7.2% in Q4 2022, unchanged from the third quarter.

The sharp rise in rates and weak global demand have battered the New Zealand economy. GDP declined by 0.6% in Q4 2022, and the cyclone in February will have a negative impact on GDP for Q1. This backdrop supports the RBNZ taking a break from its relentless rate hikes at the upcoming meeting. In February, the RBNZ projected a terminal rate of 5.50%, but with the economy showing signs of strain, the central bank might end the current cycle at 5.25%, especially if inflation heads south. We could even see a rate cut before the end of the year.

In the US, the highlight of the week is nonfarm payrolls on Friday. After a better-than-expected reading of 311,000 in March, the consensus estimate stands at 240,000 which is still decent. The Fed will be looking at nonfarm payrolls as an important factor in its rate decision in May. Currently, the odds of a 25bp increase are at 59% and a pause at 39%, according to the CME Group (NASDAQ:). This week’s employment releases kick off with JOLTS Job Openings later today. The estimate stands at 10.49 million, following the prior reading of 10.82 million.

NZD/USD Daily Chart