Will the RBNZ Surprise Us?

Typically I’m not very big on watching economic data for NZD JPY or CHF. It’s not that the data doesn’t matter, because it does, it just doesn’t have a strong immediate impact. Tomorrow is different however, as there is a chance that we could get a change of direction out of the New Zealand central bank. In their last decision in January, the RBNZ stated that a recovery had begun but would be waiting to raise rates until the middle of 2010.

As we have moved closer to that point, the data out of New Zealand has worsened. Take a look at their unemployment, which has reached the worst levels in a decade. They have also had particularly poor showing in their retail and manufacturing sectors.

The central bank also fear too high of a valuation in their currency, so the relative resilience of NZD will keep them from raising rates as soon as they believed they could.

Certainly the data supports holding off on any rates hikes in the foreseeable future. However, there is a pressure for New Zealand to keep up with Australia, who currently stands at a 4% interest rate. I don’t think the pressure will be enough to keep the rate hikes on their current schedule, but only time will tell.

A push back of the next rate increase would have a weakening effect on NZD; however, it would be short lived as the currency often ignores the fundamentals and just follows AUD. So if the rate hikes are pushed back don’t look to play a long term move, keep it short and don’t look for a breakout of the long term range.