The Australian and New Zealand Dollars are trading nearly flat early Wednesday as traders await monetary policy decisions from the Reserve Bank of New Zealand (RBNZ) and the release of Trade Balance data out of China. Traders are also paying attention to the movement in U.S. Treasury bonds and the U.S. Dollar, which are being influenced by risk sentiment.
In addition to the RBNZ news, traders will also have the opportunity to react to the major U.S. Consumer Price Index (CPI) report, due later in the day. This report is likely to influence Federal Reserve policy at its July 26-27 meeting. The market has priced in a 75-basis point rate hike at the conclusion of this meeting.
At 01:35 GMT, the AUD/USD is trading .6753, down 0.0005 or -0.07% and the NZD/USD is at 6127, unchanged. On Tuesday, the Invesco CurrencyShares Australian Dollar Trust EFT (FXA) settled at $66.94, up $0.33 or +0.49%.
RBNZ Rate Hike Expectations
Traders are expecting the Reserve Bank of New Zealand to deliver a third successive half-point interest rate hike at 02:00 GMT and a fourth next month in its most aggressive policy tightening on record to control soaring inflation, a Reuters poll found.
A front-runner in withdrawing pandemic-era stimulus among its peers, the RBNZ will extend its hawkish stride to curb the highest inflation in three decades, at 6.9%, despite growing risks of an economic downturn.
Economists have brought forward their rate hike expectations for the sixth Reuters poll in a row, and a majority, 15 of 22, now expect the official cash rate (OCR) to reach 3.5% or higher by the end of this year, broadly in line with market pricing.
Over 90% of economists, 20 of 22, forecast the RBNZ will hike by 50 basis points to 2.50% at its July 13 meeting with only two saying 25 basis points. The poll was taken July 1-7.
Expected RBNZ Inflation, GDP Outlooks
Professionals expect price pressure from global supply chain disruptions to continue.
The Reuters poll showed inflation would not fall within the RBNZ’s target range of 1% to 3% until the second half of 2023. It was forecast to average 6.0% this year and ease to 2.8% in 2023.
After an unexpected contraction last quarter, New Zealand’s economy was expected to grow 2.3% in 2022 and 2023, a marked downgrade from 3.1% and 2.7% predicted in April. Only a few economists forecast an outright recession next year.
The well-telegraphed interest rate decision is not expected to move the NZD/USD very much beyond an initial surge following the release of the report. Most traders will be gearing up for the U.S. CPI report, due to be released at 12:30 GMT.
The divergence in policies still favors the U.S. Dollar. Both the RBNZ and Fed are hawkish, but the Fed is raising rates at a 75-basis point clip versus the RBNZ’s 50-basis point hike.
A stronger-than-expected CPI report on Wednesday will likely give the Fed permission to continue to raise rates aggressively, which would not bode well for the Kiwi.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire