NZD/USD: RBNZ not willing to join the pivot party just yet

The RBNZ’s chief economist doesn’t sound in a rush to cut rates
In November, the RBNZ saw the risk of a further hike in 2024 with cuts not expected to begin until 2025 at the earliest
Weakness in New Zealand GDP may have been overstated due to one-off methodological changes

Hold off on your imminent RBNZ rate cut bets, because if the tone of the bank’s chief economist on Tuesday is anything to go by, it appears to have little interest in pivoting towards rate cuts as other major central banks have.

RBNZ chief economist anything but dovish

In a speech titled ‘The importance of quality research and data’, RBNZ chief economist Paul Conway conveyed a decisively hawkish tone, suggesting recent weakness in New Zealand’s national accounts, including a shock contraction in the third quarter, may have been driven by one-off methodological changes rather than an abrupt decline in activity.

The remark could be interpreted as an attempt to push back against forecasters and markets who have been moving to price rate cuts by the September quarter this year, in part due to reported weakness in the economy. When the RBNZ released its forecast track for the cash rate, it had the risk of a further increase in borrowing costs built into its 2024 profile with rate cuts only expected to begin from 2025 at the earliest.

Questioning the messaging received from the national accounts, Conway also cautioned that while monetary policy was working to bring inflation back to the RBNZ’s 1-3% target, non-tradable prices, or domestic inflation, remained higher than what the bank had been expecting.

“Monetary policy is working, with the economy slowing and inflation falling. But we still have a way to go to get inflation back to the target midpoint,” Conway said. “We will have much more to say on this in the February Statement, which will be based on an assessment of all incoming data.”

NZD/USD adding to earlier gains

The NZD/USD added to earlier gains following the speech, reflecting the hawkish tone which suggests the RBNZ is in no rush to join other central banks in signalling an imminent easing in monetary policy settings.

After a false break of resistance around .6133 last week, NZD/USD is having another attempt to break higher on Tuesday. If it manages to clear .6150, it may encourage fresh longs to join in looking for a move back to resistance at .6185. On the downside, bids have been noted below .6100 with further support kicking in around .6066.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.