Preview – Reserve Bank of New Zealand policy meeting on 29 January 2015 via ForexLive

A preview of the Reserve Bank of New Zealand policy meeting on 29 January 2015

And, check this out … Technical analysis: NZD ahead of the RBNZ decision

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OK … The TL;DR version of this post is ‘no change' in the cash rate.

No hike, despite the RBNZ being in a hiking cycle (currently on pause, at the very least):

• New Zealand CPI is low and getting lower
• The currency isn't all that weak either (sure, its looking soft against the USD, but the trade-weighted rate is still hanging in there …ps. intervention remains a possibility)
• Expectations of further rate hikes in NZ have receded rapidly … Westpac have even said that “OCR hikes are now so far off that debating the exact timing is a red herring” (OCR is Official Cash Rate)

But, what about a surprise rate cut? We've seen shock easings in Canada and Singapore, could the Reserve Bank of New Zealand join in? (Hint … NO)

• Strong housing market, fuelled in part by strong migration
• Strong business confidence
• Strong domestic economy  (all these despite rate hikes last year)

OK, so no change to the OCR at the meeting on the 29th. What could happen, then?

There could be a softening of the language used on the potential for future hikes, if not an outright shift to neutral (a shift to easing language is very unlikely):

• Removing language on hikes would be significant for markets and could well lead to further NZD/USD losses

Westpac, in their preview, putline some likely language to expect, or along these lines:

• Monetary policy should focus on the medium-term outlook, which is still for rising inflation
• Thus … “Inflation is expected to approach the 2 percent midpoint of the Reserve Bank's target range in the latter part of the forecast period” (A repeat of the words used in their December outlook).
• Will at the very least repeat its much-used phrase that the exchange rate is “unjustified and unsustainable.”

posted via ForexLive