New Zealand dollar higher, focus on RBNZ

The New Zealand dollar has started the week with gains. NZD/USD is trading at 0.6026 in the North American session, up 0.45% at the time of writing.

Will the RBNZ lower rates this week?

The Reserve Bank of New Zealand meets on Wednesday and it’s a live meeting as the decision is expected to be a close call. Will the central bank hold rates for a ninth straight time or will it take the plunge and cut rates? Inflation remains sticky and the RBNZ projected in May that it would not cut rates until 2025. On the other hand, the economy has cooled and is likely to fall into a third recession in just two years, putting pressure on the central bank to provide some relief with a rate cut.

If the Bank decides not to lower rates, it could put a dovish spin on the meeting and say that it discussed lowering rates at the meeting and is open to a cut in October or November. The swap markets are somewhat bullish on a rate cut this week and have priced in a 70% chance of a quarter-point rate cut.

The Federal Reserve will almost certainly cut next month, but by how much? Just one month ago, the markets had priced in a quarter-point cut at 90%, according to the CME’s FedWatch, but that was before the US posted weak numbers and the financial markets melted. This has boosted the likelihood of a half-point cut, which on Friday was around a 50/50 split with a quarter-point cut.

Still, not everybody is on board with a rate cut. Fed Governor Michelle Bowman, a voting member on the FOMC, said on Friday that she is hesitant about cutting rates, since inflation is “uncomfortably above” the 2% target and the labor market remains strong.

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NZD/USD Technical

• NZD/USD has pushed above resistance at 0.6009 and 0.6025. Above, there is resistance at 0.6050
• There is support at 0.5984 and 0.5968