NZD/USD consolidates losses around 0.5600 with all eyes on the RBNZ
- The New Zealand Dollar remains depressed around 0.5600 against the US Dollar.
- Investors are keeping away from the Kiwi ahead of the RBNZ monetary policy decision.
- Increasing hopes of further Fed easing are weighing on the US Dollar on Tuesday.
The New Zealand Dollar is hesitating around the 0.5600 level for the second consecutive day on Tuesday. The long wicks on the daily candles highlight an indecisive market with investors wary of betting on the Kiwi ahead of the RBNZ decision and the US Dollar pulling back against its main peers.
The Reserve Bank of New Zealand will release its monetary policy decision during Wednesday’s Asian session, and is widely expected to trim its OCR rate by 25 basis points to 2.25%.
The main focus of the event will be on assessing whether the central bank is contemplating further monetary easing in early 2026 to support an ailing economic growth. This would put additional pressure on the New Zealand Dollar, while a hawkish cut, with the RBNZ Governour suggesting that the central bank might have reached its terminal rate, would give NZD bulls some confidence.
US consumption, producer inflation data lie ahead
The US Dollar, on the contrary, remains moderately weak on Tuesday as recent comments by Fed officials called for further monetary easing in the coming months. Bets of a December rate cut have been ramped up to levels beyond 80% from 40% last month, but the market remains volatile in the absence of key fundamental data. Later today,
US Retail Sales are expected to show that consumer spending moderated in September, yet is still growing at a healthy 0.4% pace, following a 0.6% rise in August.
At the same time, the US Producer Prices Index is expected to have ticked up to a 2.7% year-on-year growth in September from 2.6% in August, although the core PPI is seen easing to a 2.7% yearly growth from the previous month’s 2.8% reading.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.
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