Today Reserve Bank of New Zealand (RBNZ) will announce after meeting monetary policy decisions at 20:00 GMT.
Rate path is explained in chart.
Economic condition -
- New Zealand's economy overall remained robust throughout past years however as of recent facing headwinds due to slow down in China and Europe, two of its major importer.
- Moreover weaker commodity prices and subdued domestic growth notably in housing sectors are to pose challenge for policy participants.
- New Zealand GDP remained robust growing above 3 percent. Unemployment still low at 5.7% but grew from recent 5.4%.
- Debt level is sustainable at close to 35% of GDP.
- However inflation remained subdued and grew only by 0.80% after averaging above 1.5% last year.
RBNZ stance -
- RBNZ has kept interest rates steady at 3.50% since July, highest among developed world.
- Last year it increased rates consecutive four times by 25 basis points till July 2014.
- Contrary to the rate action RBNZ shouted the kiwi down and expects it to reach around 0.65 against dollar. Currently the pair is trading at 0.723.
Expectation and impact -
- Probability of a rate hike is diminished due to lower inflation.
- Kiwi might see appreciation should RBNZ hold interest rate, especially against weaker pairs but limited against dollar.
- Probabilities are high for a rate cut other central banks sought to ease policy except the FED and a slowdown in economic activity. Kiwi's fall would be massive in such a case.
- Kiwi is trading near support of 0.72 against dollar and today's decision could be a make or break event.
