On Wednesday, the RBNZ will adopt a decision on interest rate in New Zealand, and at 23:00 the bank will publish decision and give a press conference to comment on the issue and outline the future plans of monetary policy of the central bank of New Zealand.
Positive data for New Zealand reported since the beginning of the month has allowed the New Zealand currency to strengthen on the currency market. Thus, business confidence in New Zealand in May increased (ANZ Business Confidence in New Zealand +11.3% in May versus +6.2% in April), and its growth has been observed for the third month in a row. The growth of the index indicates an increase in business investment, which is favourable for production. Terms of trade index increased (+4.4% in the first quarter compared to the previous quarter), indicating the increase in the balance surplus. Inflation expectations in New Zealand remained almost unchanged and in May amounted to 1.39% against 1.42% in April.
According to the data published on Thursday by the Global Dairy Trade, world prices for dairy products, the main product of New Zealand's exports, have increased. The price index amounted to 3.4% (against 2.6% in the previous period).
In March, the central bank of New Zealand unexpectedly lowered its key interest rate to 2.25%. This provoked a sharp collapse of the New Zealand dollar on the currency market. Subsequent comments from the RBNZ said that the central bank fears a further deterioration of the global economic outlook and a decline in inflation expectations in New Zealand itself.
Now the Bank of New Zealand is in an ambiguous situation. On the one hand, weak NFPR in the United States released last Friday will hardly let the Federal Reserve raise the interest rate in June and possibly July. The RBNZ repeatedly stated that it intends to adhere to a soft monetary policy in the country. If the Fed will refrain from raising interest rates, the RBNZ will be forced to lower the interest rate in New Zealand.
It is also possible that the RBNZ will refrain from this step amid the positive macroeconomic data coming from New Zealand. So, the suspense intensifies.
If the RBNZ goes ahead and lowers the interest rate on Wednesday, NZD/USD pair will see a substantial decline.