The Reserve Bank of New Zealand (RBNZ) is on track to keep its key interest rate unchanged for the fourth straight time on Wednesday after its Monetar
y Policy Review. The central bank's tone is expected to remain tilted to the hawkish side. Excluding any surprises in the Official Cash Rate , the focus will be on policy guidance.
The US ISM Manufacturing PMI surpassed expectations, increasing from 47.6 in August to 49 in September, compared to the market consensus of 47.7. The Price Paid component dropped from 48.4 to 43.8. Key US jobs data is due later in the week, with the ADP Private Payroll report on Wednesday and the Nonfarm Payrolls on Friday. Solid US data has been a crucial driver in the ongoing US Dollar rally.
The RBNZ is unlikely to provide significant relief for NZD/USD, as US Dollar dynamics drive its movement in a context of risk aversion and lower commodity prices. Analysts expect the Reserve Bank of New Zealand to keep the Official Cash Rate at 5.50% at the October Monetary Policy Review. The decision will be published at 01:00 GMT on Wednesday.
According to the interest rate market, the odds of a hike in October are around 10% and rise to more than 50% for the November meeting. This represents a risk for the New Zealand Dollar, considering that if the central bank delivers a message that lowers these expectations, the Kiwi would suffer. On the contrary, it would take a bold hawkish twist to increase those expectations and potentially support the Kiwi. Policymakers have arguments to deliver the message in either way.
The Reserve Bank of New Zealand holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
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