New Zealand dollar calm ahead of RBNZ rate decision

The New Zealand dollar is trading quietly on Tuesday. In the European session, NZD/USD is trading at 0.6165, down 0.12%.

Reserve Bank expected to hold rates at 5.50%

All eyes are on the Reserve Bank of New Zealand, which will set the cash rate on Wednesday. The central bank is expected to hold rates at 5.50% for a sixth straight time. Most of the major central banks are looking to lower interest rates but the RBNZ is an outlier in that regard, warning that it could raise rates and the markets have price in a rate hike at Wednesday’s meeting at around 25%.

The central bank finds itself in an uncomfortable position of high inflation coupled with weak growth. Inflation is running at a 4.7% clip, well above the 1%-3% target band. A rate hike would help push inflation lower but is risky in a weak economic climate as the economy could tip into a recession.

Last week, retail sales for the fourth quarter fell by 1.9%, lower than expected and marking an eighth consecutive quarter of decline. GDP growth contracted in the third quarter by 0.3% and a second straight quarter of negative growth would meet the definition of a technical recession.

RBNZ policy makers have pushed back against market expectations of a rate cut this year, insisting that it won’t lower rates until 2025. We can expect a hawkish message from the central bank at Wednesday’s meeting, even if the Bank decides to maintain rates at their current level.

NZD/USD Technical

• There is resistance at 0.6180 and 0.6236
• 0.6141 and 0.6085 are providing support