The Reserve Bank of New Zealand maintained a wait-and-see position during today's meeting, contrary to the "hawkish" expectations of most experts. According to the general forecast, the regulator should have raised the interest rate today by 25 basis points, that is, up to 0.5%. However, this did not happen: the members of the Central Bank reacted to the dramatically changed epidemiological situation in the country and did not risk tightening the parameters of monetary policy in such conditions.
The situation has really changed rapidly. Last week, market participants were almost sure that the RBNZ would become the first Central Bank among the central banks of the leading countries of the world to decide to increase the interest rate. It can be recalled that it was the RBNZ that decided at the July meeting to curtail the incentive program, which was supposed to be in effect until the summer of next year. At the same time, RBNZ Governor Adrian Orr, voiced "hawkish" intentions, hinting at the readiness of the Central Bank to begin tightening monetary policy.
Unfortunately, life has made its own adjustments. Just two days before the August meeting of the Reserve Bank, Auckland – the largest city in New Zealand, confirmed the first case of coronavirus infection in the last six months. Up to this point, COVID-19 was detected only at the border, thereby copying the spread of the disease within the country. But apparently, the "delta strain" turned out to be faster, somehow getting to the 58-year-old resident of Oakland. Without any restrictions, the man communicated with friends and representatives of the service sector not only in his city, but also in Coromandel, where he visited on the weekend. The authorities have already identified several contact persons who have also fallen ill with COVID-19. As a result, the number of carriers of the virus in the country has now increased to five. All of them are carriers of a more contagious delta strain. Obviously, the number of infected people will increase over time.
Reacting to the current situation, the country's Prime Minister Jacinda Ardern introduced a strict lockdown throughout New Zealand. We are talking about the fourth level of restrictions. Under this regime, residents can leave their apartments and houses only in case of "extreme necessity". Such cases are a trip to the store or pharmacy, receiving medical care, playing sports in the fresh air in your area. At the same time, the authorities canceled all public meetings and mass events, closed educational institutions. All organizations have also closed, except for those that provide "the most necessary services to the population". So, only the main civil services will work in the country.
The Reserve Bank of New Zealand also did not rush to "hawkish" decisions, keeping the interest rate at 0.25%, contrary to general market expectations of an increase in the OCR to 0.5%. In the accompanying statement, the RBNZ admitted the possibility that the regulator will tighten monetary policy at the December meeting if the necessary conditions for this remain in the country. The New Zealand Central Bank also indicated that the rate should be 1.38% (previously the forecast level was at 0.50%) in September 2022. In addition, the members of the Central Bank were optimistic about the growth rate of inflation. According to forecasts, the growth of the annual CPI should grow to 2.2% by September next year. The previous forecast was at 1.6%.
On the one hand, it cannot be said that the Reserve Bank of New Zealand "sets the trend" in the field of easing or tightening the parameters of monetary policy, as the role is assigned to the US Federal Reserve. On the other hand, the RBNZ could become a "pioneer" for the second time, pushing the first link to some kind of a domino chain. So, the summer before last, the New Zealand regulator immediately lowered the rate by 50 basis points amid the trade war between China and the United States. The echoes of this decision were felt far beyond the borders of New Zealand – many experts then suggested that the central banks of other leading countries would follow this example and resort to aggressive monetary policy easing measures. Subsequently, these assumptions were confirmed. There was a mirror situation this year. The RBNZ could also become a kind of pioneer, being at the forefront of events. But ironically, this scenario has not been implemented – the coronavirus has made its own adjustments.
The traders of NZD/USD reacted violently to the results of the August meeting. Initially, the New Zealand dollar declined to 9-month lows, reaching the level of 0.6885. But then, it sharply rose, apparently in response to optimistic forecasts regarding a possible rate hike in December. But in the end, neither the downward nor the upward impulses received their continuation.
Given the deteriorating epidemiological situation in New Zealand (the number of infected people is unlikely to be limited to 5 people) and the RBNZ's wait-and-see attitude, it can be assumed that the New Zealand dollar will be under the background pressure from the US dollar. Therefore, short positions can be considered in the medium term for the NZD/USD pair with corrective upward pullbacks. The first support level is located at 0.6900 (the lower line of the Bollinger Bands indicator on the daily chart). The main support level (the downward target) is at the level of 0.6850 (the lower line of the Bollinger Bands on the weekly chart).
