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11 July 2024 | FXGT.com

RBNZ Keeps Rates Unchanged at 5.50%, Shifts to Unexpectedly Dovish Tone

  • RBNZ Holds Rates Steady but Signals Dovish Shift: The Reserve Bank of New Zealand (RBNZ) has kept its Official Cash Rate (OCR) steady at 5.50% for the eighth straight meeting, in line with market expectations. Nonetheless, the central bank’s surprising dovish tone now indicates that a rate cut might be on the horizon sooner than anticipated.
  • Dovish Indicators in the Summary Record: The Summary Record emphasized that restrictive monetary policy has significantly reduced consumer price inflation. The RBNZ expects headline inflation to reach its target range of 1.0% to 3.0% in the second half of the year, marking a shift from May’s more hawkish outlook.
  • Speculation on Rate Cuts: Despite the dovish tone, several analysts believe that a rate cut in August is unlikely. The central bank will have more data to consider, including quarterly CPI inflation and job numbers, before the next meeting. Currently, markets are pricing in a 50% chance of a rate cut in August.
  • Pressure from Chinese CPI Data: The NZD struggled after soft Consumer Price Index (CPI) data from China, a key trading partner. Chinese CPI rose 0.2% year-over-year in June, down from a 0.3% increase in May, and below market expectations. This weaker inflation data exerts additional pressure on the NZD.
  • Powell’s Testimony: The US Dollar saw a minor rise after Federal Reserve (Fed) Chairman Jerome Powell’s testimony before the US Congress. Despite acknowledging improving inflation figures, Powell emphasized that lowering the policy rate is not suitable until there is stronger assurance that inflation is steadily approaching 2%.
  • NZDUSD Performance: Overall, the combination of the RBNZ’s steady policy, weak Chinese inflation data, and Powell’s cautious outlook has created a challenging environment for the New Zealand Dollar while supporting the US Dollar.
  • Upcoming US CPI Data and Market Focus: Traders are looking forward to the US Consumer Price Index (CPI) data set to be released later today. Core CPI is expected to remain steady at 3.4% year-over-year, while headline CPI is forecast to decrease to 3.1% from 3.3% in May.
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