August RBNZ Preview and what next for the NZD/USD
It is widely expected that the Official Cash Rate will be raised by 50 bp taking the cash rate to 3% in tomorrow’s meeting of Reserve Bank of New Zealand. It will be the RBNZ’s fourth consecutive 50bp hike in a tightening cycle that started in October.
RBNZ committed to make sure consumer price increase returns to within 1 to 3 percent target range last month and said that it would continue to increase rates on a speed to maintain price stability.
Despite a slight increase in the unemployment rate to 3.3% in second quarter of 2022 the labour market remains tight beyond the maximum sustainable level and inflation at 7.3% y/y is miles above target. The RBNZ will likely revise higher inflation forecasts and reiterate its forecast for a terminal rate of 3.9% by mid-2023.
The NZDUSD increased 3.4% last week to close above 0.6450 for its best week since June 2020. However, following the latest bout of dour Chinese economic data released yesterday, the NZD/USD has given back just under half of those gains to be trading at 0.6358.
Yesterday’s reversal lower from the 0.6469 high, has thus far held initial support at 0.6350. Below there is a layer of medium support between 0.6300 and 0.6200, which we expect to hold if tested, looking for rotation higher to the June 0.6576 high.