Many economic observers said it was still possible for the RBNZ to cut its benchmark interest rate this year if the coronavirus outbreak weighed on growth, as the New Zealand Ministry of Finance feared.
The Central Bank of New Zealand (RBNZ) shocked the market by cutting interest rates by 50 basis points in August 2019 and keeping the benchmark interest rate unchanged at a record low of 1% to date. Expectations for additional easing in February has fallen sharply over the past two months, thanks to the central bank’s surprise decision to keep interest rates stable in November and also helped by the easing of US-China trade tension.
New Zealand inflation exceeded expectations in Q4 due to rising fuel costs, rent and ticket prices. Consumer prices rose 0.5% in December and in the quarter by 1.9%. Q4 results far exceeded the Central Bank’s forecast of only pegging 0.2% in its latest monetary policy statement. This increase was due to transportation costs, which rose 2.1% in the quarter, largely driven by seasonal increases in international ticket prices.
Inflation has risen consistently and is now slightly below the midpoint of 2% of the RBNZ target range of 1-3%. The central bank has adopted a dual mandate to maintain medium-term inflation between the target range and support maximum sustainable employment. The official cash rate (OCR) has not changed from its record low of 1.0% at the last meeting in November. The next RBNZ monetary policy meeting is on February 12. If there are no significant surprises or global shocks, interest rates will likely remain in the same position, while the coronavirus still weighs on future concerns.
Employment and Unemployment Data
New Zealand will be reporting economic data changes in employment data later today (21:45 GMT). The data will be an important indicator of job creation which will directly affect consumer spending, as the main driver of economic activity. The market expects changes in employment to rise by 0.3% and the unemployment rate to remain at the same level of 4.2%. If the actual rate of employment change is higher and the unemployment rate is lower then the Kiwi is likely to strengthen, and vice versa should the data miss expectations.
NZDUSD – The total decrease from January 1 to today is -4.3%. Now the price is stuck at the previous neckline breakout level. The correction rate is around 50.0%. The RSI shows oversold at level 30 and the MACD has not yet confirmed the buy signal. The price position is still below the 200-day moving average. From the appearance of the monthly candle, prices are filling the December transaction range and prices are still within that range.
NZDUSD, H4
The 4-hour chart over the last 2-day period during the European session was still consolidating in a narrow range with the appearance of a narrow candle, the RSI has been at oversold levels over the past week, and although the MACD gave a buy signal it looked weak and there was no validation from price action. There needs to be a momentum movement to move prices and it is likely that the two reports of economic data could be the motor for the Kiwi. The levels of resistance and support that need attention are the psychological level of 0.6500 and 0.6575 with support at 0.6425 and 0.6375.
Ady Phangestu
Market Analyst – HF Educational Office – Indonesia
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