What's driving the NZD ahead of the RBNZ

By Giles Coghlan, Chief Currency Analyst at HYCM

RBNZ Meeting Feb 12 at 01:00GMT

When the RBNZ last met they surprised the markets by keeping a bullish hold at 1.00% vs expectations of a cut to -0.75%. The committee agreed that the general risks to the NZD economy were, 'tilted to the downside and agreed it would add further monetary stimulus if economic developments warranted it'.

So, the RBNZ has been in a data-dependent mode since the November hold. The data has been generally good for the RBNZ since the November rate decision:

• Feb 04: Unemployment rate falls to 4.0% vs 4.2% expected
• Jan 23: Q/Q CPI inflation at 0.5% vs 0.4% expected, 1.9% y/y vs 1.8% y/y (RBNZ's y/y target range is 1-3%)
• Jan 13: NZIER Business confidence -21 (negative, but still lifting from low levels)
• Dec 18: GDP 0.7% vs 0.5% expected

Where now for the RBNZ?

However, the outlook for New Zealand is tempered somewhat by the coronavirus outbreak expected to weigh on GDP figures. Both ANZ and BNZ have cut their growth forecasts for New Zealand's GDP projections. The current expectations are 6% for a rate cut at this Feb 12 meeting and an 'on hold' decision is the current market expectation. Any deviation from this outlook will result in a tradable sentiment shift.

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