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Reserve Bank surprised investors again

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RBNZ surprised market participants again today. It should be noted that the Reserve Bank of New Zealand “knows how to surprise”, although this quality does not characterize the Central Bank on the positive side. A weak level of communication, as a rule, provokes increased volatility, exciting the markets. And yet the fact remains: the New Zealand regulator at its today’s meeting once again presented a surprise to traders nzd / usd, providing significant support to the national currency. So, today RBNZ announced the termination of the stimulus program for the purchase of bonds in the amount of 100 billion New Zealand dollars. This news caught by surprise the majority of market participants, who were, apparently, set up for a “walk-through” meeting. The program was supposed to operate until next summer, but the members of the Central Bank came to the conclusion that the national economy no longer needs additional incentives. Thus, the Reserve Bank of New Zealand was at the forefront of the Central Banks of the leading countries of the world – it was the first to completely stop QE. Commenting on the decision, the head of the Central Bank Adrian Orr said that the latest published macroeconomic data indicate that the New Zealand economy “remains strong.” The country has lifted most of the coronavirus restrictions (while the country’s borders are still “locked”), and the last case of COVID-19 was registered at the end of winter. The combination of these factors allowed the country’s economy to recover at a faster pace. Against the backdrop of such hawkish decisions, many experts suggested that the next step of the RBNZ would be to raise the interest rate. And here the New Zealand regulator will also be at the forefront of events. Actually, Adrian Orr did not rule out this scenario. But at the same time, he stressed that the central bank will consider the issue of tightening the policy only after its “targets for inflation and employment are sustainably achieved.” According to the latest data, the unemployment rate in New Zealand fell to 4.7% in the first quarter of this year, while according to general forecasts, this indicator should have remained at the level of the 4th quarter, that is, at around 4.9%. The growth rate of the number of employed increased by 0.6% on a quarterly basis (with the forecast of growth up to 0.3%). De facto, unemployment has been declining for the second quarter in a row, and at a faster pace. As for inflation indicators, there are also positive trends. The latest data on inflation growth in New Zealand also supported the Kiwi. In the first quarter of this year, positive dynamics was recorded: in quarterly terms, the consumer price index rose to 0.8% (from the previous value of 0.6%), on an annualized basis – to 1.5% (with a forecast of growth of up to 1.4% ). Given such dynamics, some analysts suggested that the Reserve Bank of New Zealand may raise the rate in August or at one of the autumn meetings. In my opinion, such a scenario is very likely, given the RBNZ’s reputation. For example, last summer, the New Zealand regulator shook up the markets thoroughly, cutting the interest rate by 50 basis points at once without any warning. At that time, the financial world was feeling the consequences of the trade war between the United States and China. By the way, the Central Bank of New Zealand became actually the first among the central banks of key countries of the world, which decided to ease monetary policy – followed by the Fed, the ECB, the RBA and some other regulators. Then the head of the New Zealand Central Bank, Adrian Orr, said that New Zealand may well have to deal with negative rates – in the event of a crisis, the regulator can reduce the key interest rate to -0.35%. And now, in 2021, the Reserve Bank of the island state can also become a “pioneer” – only this time in the matter of tightening the parameters of monetary policy. This fundamental factor will provide significant support to the “kiwi”, including in a pair with the greenback. Moreover, the head of the Fed, Jerome Powell, still takes a “dovish” position, exerting background pressure on the US dollar. A few hours before the speech of the head of the Fed in Congress, his report was published in the press, which turned out to be very “soft” and pessimistic. For example, according to Powell, “the US economy still needs help and is far from the point of reducing quantitative easing.” The head of the Federal Reserve also noted that the American labor market is “still far” from the progress that the Fed members want to see before cutting incentives. Powell also expectedly ignored the record rise in inflation, saying that key indicators in this area “will decline in the coming months.” Thus, the current fundamental background contributes to the further growth of the pair nzd / usd – both in annual and monthly terms. The first target of the northern movement is the level of 0.7070 – this is the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the daily chart. The main target is the 0.7130 mark, which is the lower border of the Kumo cloud on the same timeframe. – Source: InstaForex

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