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Greg Gibbs, founder, analyst, & PM at Amplifying Global FX Capital Pty Ltd an Australian financial services company, explained that theRBNZ policy statement should maintain a neutral policy stance noting that it is “positioned to manage change in either direction – up or down – as necessary”.

Key Quotes:

“And “The best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period.”

This RBNZ meeting is accompanied by the MPS and press conference.  So there will be more fodder for the market to move on.

The Q2 inflation data did show an uplift in underlying inflation.  The RBNZ’s preferred Sector Factor Model rose from 1.5% (revised up to 1.6% in Q1) to 1.7% in Q2, moving closer to the 2% inflation target, a high since 2011.  So the RBNZ will probably not need to sound more dovish.  On the other hand, the recent weaker business surveys suggest underlying activity has weakened, so they are likely to maintain a balanced outlook.

It will be interesting to see how Governor Orr balances the softer activity indicators with the higher inflation outcome.  He may decide to indicate that while the pick-up in inflation is encouraging, NZ has experienced several years of below-target inflation, dragging down inflation expectations, and the RBNZ could afford a period of above-target inflation to help lift and sustain inflation around the target.  If so this could be viewed as a dovish outcome and propel further weakness in the NZD.”