RBNZ Holds Steady
The New Zealand dollar saw a sharp increase overnight as the Reserve Bank of New Zealand’s first meeting of the year saw them holding monetary policy unchanged. No change was expected, and rates remain at current all-time lows. However, the meeting itself was a little more hawkish than many were expecting.
The RBNZ adjusted its forward guidance, signalling that no further easing seems necessary at this point. However, the bank did caution that there is room to ease further if necessary, for example if the impact of the corona-virus outbreak requires it.
The headline New Zealand interest rate remains at 1%, following .75% worth of easing last year as the economic damage from the US-Sino trade war forced the bank into action on two occasions, including a large .50% cut in August.
2020 Rate Cut No Longer Base-Case Scenario
In terms of the RBNZ’s economic assessment, the bank struck a more optimistic tone than the market has seen over recent meetings. While the RBNZ, as with many other central banks recently, highlighted the clear downside risks from the corona-virus, the RBNZ was more positive about employment data and consumer prices which have been rising recently. The bank’s adjust forecast now suggests that a rate cut might not be necessary this year.
Corona-Virus on Watch
Commenting specifically on corona-virus, the RBNZ said that that the impact would likely be limited in scope and short in duration in New Zealand, with the majority of the impact contained in H12020. However, there was some caution as the meeting statement said “Nevertheless, some sectors are being significantly affected,” RBNZ’s monetary policy committee said in a statement accompanying the rates decision. “There is a risk that the impact will be larger and more persistent. Monetary policy has time to adjust if needed as more information becomes available.”
As with many other key trading countries, New Zealand’s exports and imports have been hurt by the ongoing loss of activity in China. Exporters dealing in Meat, dairy, seafood and timber have all had their quotas hurt by the shutdown in China, which is New Zealand’s key export market.
The bottom line from the meeting seems to be that, barring a further escalation in the corona-virus outbreak, the RBNZ is content to keep rates on hold this year while it monitors incoming economic data. However, if the virus outbreak causes unforeseen economic damage, it stands ready to ease again.
NZDCAD (Bullish above .8614)
From a technical viewpoint, the rally in NZDCAD suggests that a break higher could be seen in coming days. Price is still below the bearish trend line from 2020 highs and the monthly pivot at .8614, though with longer-term VWAP positive here, price action looks likely to advance higher, targeting a move back to 2020 highs and the yearly pivot at .8755 first.
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