The New Zealand Dollar is edging lower on Tuesday ahead of tomorrow’s central bank meeting. Markets are pricing a 50 basis point rate hike by the Reserve Bank (RBNZ) to bring New Zealand’s benchmark interest rate to 4.75% and are also weighing the economic impact of Cyclone Gabrielle.
Among 25 economists polled by Reuters on Feb. 13-16, 20 expected the central bank to raise its policy rate by 50 basis points next week, even though the RBNZ Monetary Policy Statement in November had suggested a 75 basis point rise this month and an eventual peak of 5.5%.
The median from the Reuters poll now puts the peak at 5.25%.
At 04:56 GMT, the NZD/USD is trading .6244, down 0.0008 or -0.13%.
Disasters Creating Economic Uncertainty
Opinions are mixed about the impact of Cyclone Gabrielle on the economy, RBNZ monetary policy and the New Zealand Dollar. Traders are hoping policymakers shed some light on the situation.
No one has yet estimated the scale of the damage from the severe weather. But Finance Minister Grant Robertson told broadcaster TVNZ the cost to the government could be similar to the NZ$13.5 billion ($8.42 billion) it had spent rebuilding Christchurch after an earthquake in 2011.
“This will be a significant event financially for the government and for individuals, households, businesses, banks and insurers,” he said.
Analysts at ANZ also weighed in about the issue. “As markets contemplate the cost of rebuilding and the impact that’s likely to have on inflation, insurance flows and infrastructure spending, it’s quickly becoming a potential driver of sustained New Zealand Dollar strength,” ANZ analysts said.
RBNZ Rate Hike Campaign at Risk
A surge in prices looks likely from the disruption. Economists expect inflation, already running at a near three-decade high of 7.2%, to rise as the country replaces home contents and repairs infrastructure. Loss of crops will push up food prices.
That would normally be a reason for a central bank to lift interest rates further, but some economists expect the RBNZ to look past the sudden rise as being temporary, according to Reuters.
Still, Kiwibank chief economist Jarrod Kerr said the central bank should pause hikes until the effect of the cyclone can be understood.
“Current circumstances warrant caution. But what we think they should do is not what they will likely do,” said Kerr.
After the Christchurch earthquake, the central bank cut its policy rate due to concerns about the economy.
Daily NZD/USD Technical Analysis
The main trend is down according to the daily swing chart. A trade through .6194 will signal a resumption of the downtrend. A move through .6389 will change the main trend to up.
Daily NZD/USD Technical Forecast
Trader reaction to a long-term Fibonacci level at .6231 is likely to determine the direction of the RBNZ on Tuesday.
A sustained move over .6232 will indicate the presence of buyers. This could trigger a quick move into a minor pivot at .6292. This is a potential trigger point for an acceleration to the upside with the next target .6365 to .6389.
A sustained move under .6231 will signal the presence of sellers. This could lead to a retest of last week’s low at .6194, followed by the Nov. 28 main bottom at .6156.