NZD/USD hovers around 0.6200 after RBNZ interest rate decision

• NZD/USD extends gains by almost 1.0% on the day.
• RBNZ held the interest rate at 5.50% for the fifth meeting in November.
• RBNZ emphasizes keeping OCR restrictive to bring inflation back within the 1-3% target range.

NZD/USD continues its winning streak that began on Thursday, trading higher around 0.6190 during the Asian session on Wednesday. However, Reserve Bank of New Zealand (RBNZ) board members held the interest rate steady at 5.50% for the fifth meeting in its November monetary policy meeting. This decision aligns with widespread expectations in the market.

The NZD/USD pair rose almost 1.0%, possibly triggered by the summary of the RBNZ interest rate statement. The statement mentions the possibility of an increase in the OCR if inflationary pressures turn out to be stronger than anticipated.

The RBNZ highlights in its interest rate statement that current interest rates are acting to restrict spending in the economy. The statement notes that consumer price inflation is declining, and this aligns with the Committee’s Remit. To meet its objectives, the RBNZ emphasizes the need for the Official Cash Rate (OCR) to remain restrictive, aiming to keep demand growth subdued and bring inflation back within the 1 to 3 percent target range.

The minutes of the Reserve Bank of New Zealand (RBNZ) interest rate meeting reveal several key points. The committee agreed that interest rates will need to remain at a restrictive level for a longer duration. Despite interest rates already being considered restrictive, the committee deemed it appropriate to wait for further data and information before making any adjustments.

There was an acknowledgment that pressure in the labor market is easing, although employment remains above its maximum sustainable level. While certain sectors of the economy are experiencing a slowdown in growth, there has been less of a decline in aggregate demand growth than anticipated earlier in the year. The RBNZ committee highlighted that the estimate of the long-run nominal neutral Official Cash Rate (OCR) has increased by 25 basis points to 2.50%.

Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr shared insights during the post-monetary policy meeting press conference. He mentioned that the meeting with the new Prime Minister was highly constructive. The RBNZ remains steadfast in its stance to hold rates steady through the next year. While the projection shows an upward bias to rates, Orr emphasized that it is not definite and could be subject to change.

Moreover, Governor Orr highlighted that the risk to inflation is leaning more towards the upside, indicating a potential concern about inflation persistently being outside the target band for an extended period.

On the other side, US Federal Reserve (Fed) Governor Christopher Waller’s remarks have played a role in the negative momentum for the US Dollar. His comments, suggesting that if inflation consistently declines, there’s no need to maintain high interest rates, signal a more accommodative stance from the Federal Reserve.

The US Dollar Index (DXY) reaching its lowest level since August 11 is noteworthy, especially given the better-than-expected Housing Price Index and Consumer Confidence data from the United States. Despite positive economic indicators, the US Dollar is facing headwinds, and the decline in US Treasury yields is cited as an additional negative factor contributing to the weakening of the Greenback.

The September US Housing Price Index (MoM) remained consistent at 0.6%, surpassing the expected figure of 0.4%. This indicates a stable and positive trend in housing prices during that period. The CB Consumer Confidence Index saw an increase in November, reaching 102.0. However, this uptick comes after a downward revision of October figures, which were adjusted from 102.6 to 99.1.

Wednesday is set to bring a new estimate of US GDP growth taking center stage. This data will offer insights into the pace and trajectory of economic expansion during the third quarter. Later in the day, the Federal Reserve will release the Beige Book.