With the opening of today's trading day the USD fell against major currencies. Probability of the interest rate increase in the USA in September is now 18%. However, investors are not in a hurry to close short positions on the USD.
Large-scale decline of the USD has triggered the rise in the pair NZD/USD since the opening of today's trading session. However, since the beginning of European session the pair has been declining. Today at 24:00 (GMT+3) interest rate decision by the RBNZ's will be announced. Probability of a rate cut is 97%. Now, interest rate in the country is at the level of 2.25%. The Central Bank of New Zealand has lowered the rate in March.
The report, made by the RBNZ late July has stated that the continuing low rate of inflation and high rate of the NZD, as well as increasing pressure on the dairy and manufacturing industries are the main negative factors for economic development of the country. According to the head of the RBNZ Graeme Wheeler, more monetary policy easing will be necessary in order to maintain average inflation rate in the middle of the target range, which is 1% -3%.
Last week, Australian Bureau of Statistics issued the index of wages and quarterly survey on employment. The data showed a restrained growth of wages and employment in the 2nd quarter. According to a report by the RBNZ, inflation expectations in the 3rd quarter amounts to 1.7% (vs. 1.6% in the previous quarter), indicating that inflation expectations in New Zealand remain low.
Economists expect that intere3st rate in New Zealand will be lowered to 1.5%. According to market participants expected decrease in interest rate by 25bps.p. has already been incorporated in price of the NZD and will not cause significant decline in the currency. However, the RBNZ can surprise the markets if the rate will be reduced immediately to 0.5%. In this case, the pair NZD/USD will fall sharply. Further movement in the New Zealand currency will depend on the decisions and comments by the RBNZ.
On the other hand, positive data on the labor market in the United States, released last week has increased chances of the rate hike in the USA before the end of the year. The USD continues to maintain its position in the market in general and against safe haven assets and commodity currencies. Market participants believe that the rate will be raised by 25 basis points, up to 0.75% in December.
Taking into account difference in the monetary policies of the USA and New Zealand, it is expected that the pair NZD/USD will decline in the medium term.