Reserve Bank of New Zealand: Full steam ahead?
The RBNZ meeting was as expected this week. Rates were raised by 50bps to 3.50bps and the RBNZ maintained a robust view of the domestic economy. Reuters reported that the board even debated hiking by 75bps and was expressing concerns over a weaker NZD which posed threats to the inflationary outlook. The RBNZ noted that domestic spending has been strong despite slowing growth. Employment levels are high and households have managed to keep higher levels of savings. The country, like many other places, is still seeing labour shortages.
Unemployment is low and the committee wants to see monetary conditions tighten so that they achieve their inflation target. Inflation is still high in New Zealand with CPI y/y at 7.3%.
So, the RBNZ has affirmed that they will not pull back from hiking rates. This hawkish stance should keep the NZD supported. However, it is worth noting that the NZD has been tricky to trade recently. Despite some pretty strong fundamentals the currency does not always strengthen. Therefore, a more prudent approach might be to step aside and avoid trading the NZD until it becomes more predictable.
Although it should also be said that an AUDNZD sell bias makes sense on the divergence between the RBA and the RBNZ, but managing risk is key here. Looking at major areas where stops can be placed above key technicals would be the sensible approach if you did decide to take a trade.
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.
*Any opinions made in this material are personal to the author and do not reflect the opinions of HYCM. This material is considered a marketing communication and should not be construed as containing investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. Past performance is not a guarantee of or prediction of future performance. HYCM does not take into account your personal investment objectives or financial situation. HYCM makes no representation and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast, or other information supplied by an employee of HYCM, a third party, or otherwise. Without the approval of HYCM, reproduction or redistribution of this information isn’t permitted.