According to today’s data released by New Zealand’s Bureau of Statistics growth of wages and employment rate in Q2 was low. Yesterday’s quarterly report by the RBNZ published showed that inflation expectations in the 3rd quarter were 1.7% (vs. 1.6% in the previous quarter).

Inflation expectations for 12 months were 1.26% vs 1.22% in the previous quarter. The forecast of the consumer prices growth for the 24 months in the 3rd quarter amounted to 1.655 against 1.645 in Q2.

The report indicates that inflation expectations in New Zealand remain low, which is the sign of inflation in the country may increase. The decline in oil prices and commodities, as well as the rise in the New Zealand currency are the factors, which may cause the rise in inflation in the country.
Weak inflation data may force the RBNZ to reduce the key interest rate to 2.0%, or perhaps to 1.5%., at the meeting on 10August.

At the end of July, the RBNZ issued the report, stating that the long-lasting low rate of inflation and the rise in the NZD, increase pressure on the dairy and manufacturing industries, which are the main negative factors for economic growth of the country.

President of the RBNZ Graeme Wheeler said that probably more monetary policy easing may be required to maintain inflation rate in the middle of the target range of 1% -3%.

Yesterday, the NZD hardly reacted to the results of the global dairy auction. Price index for dairy products has increased by 6.6%, while prices for whole milk powder soared up by 9.9%. With the opening of today’s trading day, the NZD has been declining in the market and in the pair NZD/USD.

Yesterday, the President of Atlanta Fed Mr. Dennis Lockhart said that he did not rule out possibility of the interest rates increase at the next Fed meeting in September. Lockhart’s opinion is concurrent with the majority of financial market participants, who believe that interest rate in the USA might be raised by 0.25% in December.

Given the difference between monetary policies of the USA and New Zealand it is expected that the pair NZD/USD will continue to decline in the medium-term.

NZD/USD: Will the RBNZ reduce interest rate at the next meeting?  Fundamental analysis for 03.08.2016.

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