NZ dollar climbs ahead of RBNZ rate decision

The New Zealand dollar has posted considerable gains on Tuesday. In the North American session, NZD/USD is trading at 0.6065, up 0.54% and its highest level since March 21.

RBNZ widely expected to hold cash rate

The Reserve Bank of New Zealand meets early on Wednesday and it’s practically a given that it will hold the cash rate at 5.5%. This would mark the sixth straight time that the RBNZ maintains rates and prolongs its “higher for longer stance”.

Investors will be interested in whether the RBNZ pushes back against market expectations of rate cuts – investors have priced in two cuts with a 70% probability of a third this year. The decision will not include updated economic forecasts or a news conference with Governor Orr, which could limit New Zealand dollar volatility around the meeting.

The markets are being aggressive in their pricing of rate cuts, mainly due to a weak economy, as GDP has contracted in four of the past five quarters. However, high inflation is a key reason why the RBNZ is hesitant to signal rate cuts are coming. In the fourth quarter, the inflation rate was 4.7%, well above the upper limit of the 1-3% target band. New Zealand releases first-quarter CPI next week, and the release will be a key factor in the central bank’s rate policy.

The RBNZ would prefer to have the Federal Reserve cut rates first, as this would boost the New Zealand dollar and weigh on inflation. The Fed has signaled rate cuts are coming but stronger than expected data, such as last week’s nonfarm payrolls, may lead the Fed to delay lowering rates.

NZD/USD Technical

• NZD/USD is testing resistance at 0.6060. Above, there is resistance at 0.6107
• 0.6000 and 0.5953 are providing support

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