RBNZ: Hints at Slowing Growth
RBNZ: Hints at Slowing Growth
Heading into the last RBNZ meeting short-term interest rate markets were pricing in a 100% chance of a 50 bps rate hike and a 67% chance of a 75 bps rate hike. The RBNZ delivered that 50 bps rate hike and affirmed the aggressive path of rate hikes from May’s meeting. As a reminder, the RBNZ’s May projection is to raise the OCR rate (interest rate) to a level that brings consumer inflation down:
- * May projection for the OCR for Sep 2022 at 2.68%,
- * May projection for the OCR for June 2023 is now at 3.88%,
- * May projection for the OCR for Sep 2023 is now at 3.95%.
The RBNZ then saw interest rate dropping in June 2025 to 3.5%. So, at face value, it was a completely ‘as planned meeting’.
Hints at slowing growth
Although the decision was broadly in line with what was expected we did caution before the July 13 meeting that the main focus for the meeting was likely to be the future path of growth. This was especially after we noted a research piece from the Bank of New Zealand which projected that New Zealand could enter into a recession in 2023. The BNZ’s head of research warned that the latest ANZ Bank’s survey of business opinion was ‘littered with indicators that fit with our view that the economy is headed into recession’.
Slowing growth hints did make it into the July statement as the RBNZ said, ‘Members noted that while there are near-term upside risks to consumer price inflation, there are also medium-term downside risks to economic activity’. The main message from the RBNZ was that price pressures remain persistent enough to carry on with their rate hiking outlook from May. However, the RBNZ did note the downside risks.
The takeaway
This means that going forward any further signs of New Zealand’s economy slowing down could result in further expectations of the RBNZ recognising these downside risks. This could weaken the NZD. For now, the NZD remains a ‘buy on deep dips’, but the AUDNZD could end up pushing higher if the RBA and the RBNZ’s policies diverge. So, look for the scenario where the RBNZ starts to signal a lower path of rates while the RBA sticks to its rate hiking script. This could create an upside bias for the AUDNZD. This is not an obvious trade to take at the time of writing, but it is one to keep on the radar. Watch incoming New Zealand data.
HYCM clients can access the Seasonax product in order to analyse over 25,000 currency pairs, indices, commodities, as well as individual stocks. Please contact your account manager for a free trial. Certain products & services mentioned herein may or may not be available to all clients depending on which HYCM Capital Markets Group entity their trading account(s) adheres to.
About: HYCM is the global brand name of HYCM Capital Markets (UK) Limited, HYCM (Europe) Ltd, HYCM Capital Markets (DIFC) Ltd and HYCM Limited, all individual entities under HYCM Capital Markets Group, a global corporation operating in Asia, Europe, and the Middle East.
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.
20220726
