NZD tumbles after RBNZ delay rate hike for another year, dovish signal to the markets

The Reserve Bank of New Zealand said the Official Cash Rate (OCR) remains at 1.75 percent. The central bank also said OCR at this level through 2019 and into 2020, longer than the May projection. NZD tumbles 0.50% across the board, especially AUDNZD running through 1.1100

Labor Market: The RBNZ acknowledge “The labour market has tightened over the past year. Employment is near its maximum sustainable level”. “We expect the unemployment rate to decline modestly from its current level.” Governor Orr said.

Inflation: “There are welcome early signs of core inflation rising. Inflation will increase towards 2 percent over the projection period as capacity pressures bite.” He said. “We will look through this volatility as appropriate, and only respond to any persistent movements in inflation.” He also said.

Growth outlook: The bank also acknowledges “recent economic growth has moderated, we expect it to pick up pace over the rest of this year and be maintained through 2019.” Highlighted the risk “The recent moderation in growth could last longer. Low business confidence can affect employment and investment decisions.”

Summary:
• Delay rate hike for another year
• Welcome early signs of core inflation rising
• The direction of our next OCR move could be up or down, unchanged from May statement
• Inflation will increase towards 2% over the projection period
• RBNZ only respond to any persistent movements in inflation
• 2018 Outlook for GDP growth has been downgraded
• Economic growth has moderated, we expect it to pick up pace over the rest of this year and be maintained through 2019 vs. Economic growth and employment in New Zealand remain robust, near their sustainable levels in May statement

FX Market Reaction: Nose drops below the horizon 

The market prepared for the dovish tone, but today’s meeting outcome is more dovish than expected. The cross NZDUSD tumbles to 0.6689 and AUDZND rallying to 1.1120.

NZDUSD: Initial support finds at 0.6640

It is important to always keep in mind the risks involved in trading with leveraged instruments.

What is your Technical View?

Do you have a different idea? Please leave us a comment and get an answer from our professional analysts