NZD/USD Dips Ahead of RBNZ Rate Decision

• New Zealand central bank expected to pause after 12 consecutive hikes
• New Zealand Manufacturing PMI expected to show manufacturing is stalled

The New Zealand dollar is lower on Tuesday. In the European session, NZD/USD is trading at 0.6189, down 0.35%.

RBNZ expected to take a pause

The Reserve Bank of New Zealand will be in the spotlight on Wednesday. The central bank holds its policy meeting and is expected to leave the official cash rate unchanged at 5.5%. The RBNZ has raised rates 12 consecutive times since August 2021 but has signalled that it’s time for a breather. Shortly after the May hike, Deputy Governor Hawkesby said that there would be a “high bar” for the RBNZ to continue raising rates. The RBNZ won’t be issuing a rate statement and there may not be much for the markets to digest other than the expected pause.

The decision to pause is certainly not a no-brainer, given current economic conditions. Inflation is running at 6.7%, more than triple the Bank’s target of 2% and the labour market remains tight. At the same time, demand has slowed and economic activity has cooled as the RBNZ’s relentless rate hikes filter through the New Zealand economy. RBNZ policymakers are confident that the economy has cooled and inflation, although high, is on the right path. If inflation continues to fall, there is a good chance that the pause could be extended – the central bank would clearly like to wrap up the current rate-tightening cycle, and unlike what we saw when the Fed took a pause, there are no signals to the markets that this pause will be a one-time occurrence.

New Zealand releases Manufacturing PMI for June on Wednesday after the rate decision. The manufacturing sector has contracted for three straight months, with readings below the 50.0 line, which separates contraction from expansion. The PMI is expected to rise from 48.9 to 49.8, which would point to almost no change.

NZD/USD Daily Chart

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