The New Zealand dollar remained under pressure and was in negative territory at the start of the week. Earlier in the day, NZD/USD dropped to 0.6813, its lowest level since Mar. 16.
Markets await RBNZ rate decision
The RBNZ, like many other major central banks, was finding itself playing catch-up with soaring inflation. The Federal Reserve, for example, was widely expected to bring out the heavy ammunition; namely, one or more 0.50% rate hikes in order to curb inflation.
The markets were expecting the RBNZ to follow suit with hawkish forward guidance. However, the consensus is that the RBNZ will increase rates by just 0.25% at this week’s meeting, which would bring the Cash Rate to 1.25%. This could result in disappointment in the markets and send the New Zealand dollar sharply lower.
Some economists were predicting a 0.50% hike at the meeting, and the uncertainty could well contribute to NZD/USD volatility around the time of the rate decision. The RBNZ was well on its way to normalization, with the central bank’s forecasts predicting that rates would climb to 2.5% over the next 12 months and peak around 3.25% at the end of 2023.
Later today, New Zealand was expected to release the NZIER Business Confidence index. In Q4, business confidence worsened, falling from -11 to -28, due to the COVID lockdowns and shortages of material and labor. The lockdowns are gone but the shortages remained, and with high inflation hurting businesses, I expect another decline in the NZIER Business Confidence index.
There were concerns about China’s growth, as COVID cases rise while the government presses ahead with its COVID-zero policy. The city of Shanghai remained in lockdown and if the government extends lockdowns to other cities, the economic outlook will certainly worsen.
The property crisis hasn’t been in the headlines but remained a potent problem. Zhenro Properties Group (HK:6158), a major developer, officially defaulted on some US dollar bonds, worth USD 540 million.
NZD/USD Technical
- 0.6980 was the first line of resistance, followed by 0.7113
- There was support at 0.6902 and 0.6769
