Il New Zealand dollar is on everyone's lips after the Bank of New Zealand surprised the markets at its periodic interest rate policy meeting. While the RBNZ kept rates unchanged at 0,25%, the central bank abruptly stopped its quantitative easing.
The Reserve Bank's Monetary Policy Committee, led by Governor Adrian Orr, said Wednesday that it will stop buying bonds in its large-scale asset purchase program until July 23. The communiqué omitted an earlier reference to the need for considerable time and patience to meet its inflation and employment targets.
Then, on Friday, the release of second-quarter inflation data set fire to more flames. The overall CPI was equal to that of coal, with an increase of 3,3% year-on-year (compared to an expected 2,8%) and 1,3% (compared to an expected 0,8%) only in this quarter. As a result, expectations have increased and market prices a rise in short-term rates in the RBNZ; While the consensus last week predicted a hike in November this year, expectations are now for a rate hike at the next RBNZ meeting scheduled for August 18th. If the official employment forecast for August 4th is also good, you can almost bet that the RBNZ will start to raise rates.
Showing similar inflation data, BusinessNZ's manufacturing PMI for June also came in at 60,7, too high compared to expectations of 55,8. Signs of an overheated economy are appearing, leaving the RBNZ with little choice or time to wait before adjusting.
As a result, two major banks, ANZ and Westpac, issued very aggressive rate hike requests following the release of important data.
ANZ commented that the Monetary Policy Report clearly stated that they see that the monetary policy cycle has changed and they expect the Official Cash Rate (OCR) to rise in 25 basis point increments over the next six meetings, bringing the OCR at 1%.
Westpac has a similar call, expecting three RBNZ rate hikes by the end of this year, expecting New Zealand's interest rate to end the year at 1%.
With COVID cases relatively controlled in New Zealand compared to other countries, the New Zealand economy is on track to be the first to fully recover from the damaging effects of COVID, even as other countries continue to struggle against the increase in cases and possible closures that will once again chase the hopes of economic recovery.
Therefore, I expect the New Zealand dollar to rise further against all of its counterparts from now on, and particularly against the neighboring Aussie dollar, which is still trying to address an increase in COVID cases and a shortage of economic growth. with its inflation at just 1%, without reaching the 2-3% target. The tightening in New Zealand, as Australia continues to relax, sets the stage for the biggest political divergence between the two neighbors this year and is a good setting for a short sale of AUD against NZD.
As more traders realize the turnaround in the RBNZ, the impact of this NZ dollar movement against other currencies will be seen more prominently. Further movements are expected after other countries clarify their interest rate positions, as well as after New Zealand initiates its first rate hike.
About Kim Chua, a market analyst at PrimeXBT:
Kim Chua is an institutional trading expert with a successful track record that extends to major banks including Deutsche Bank, China Merchants Bank, and others.
Over time, Chua launched a hedge fund that has consistently achieved triple-digit returns for seven years. Chua is also an educator at heart who has developed her own trading curriculum to pass your knowledge on to a new generation of analysts.
Kim Chua closely follows traditional and cryptocurrency markets and looks forward to finding future investment and trading opportunities as the two very different asset classes begin to converge.