Earlier this week, the AUD/USD pair reached three-month lows, amidst the spread of the coronavirus, concerns about the growth of the Chinese economy and the overall strengthening of the dollar. It reached the level of 0.6377, then turned sharply and jumped more than 100 points. This is because the kiwi received unexpected support from the Reserve Bank of New Zealand, which held its first meeting of the year on February 12. Contrary to the pessimistic expectations of the market, the regulator voiced a rather restrained position, and did not announce any plans of reducing interest rates in the foreseeable future.
The meeting of the RBNZ fully met the expectations of most analysts regarding the decision on interest rates. Currency strategists were confident that the Central Bank would maintain the status quo, due to the growth of New Zealand's key macroeconomic indicators. There was no consensus on the future prospects though, as according to some experts, the regulator will stick to a wait-and-see position until the end of the year. Others, on the contrary, believe that Central Bank members will still allow a rate cut, against the background of recent events in China.
Australia and China are New Zealand's main trading partners. Therefore, the slowdown in economic growth of these countries reflect the growth dynamics of New Zealand's economy. Factors such as the decline in the commodity market, the slowdown in Chinese macroeconomic indicators (industrial production and retail sales), and the prospects of a slowdown in the global economy somehow put pressure on the kiwi, so some analysts ( ANZ in particular) predict two rounds of rate cuts this year (in May and August), where the official interest rate will be 0.5%. Moreover, the increase in panic about the spread of the coronavirus has only increased such concerns.
However, the Reserve Bank of New Zealand negated these rumors this week. According to the meeting,the regulator does not intend to soften monetary policy in the framework of 2020. Adrian Orr, Governor of the Reserve Bank of New Zealand, said that he was satisfied with the growth rate of real wages, as well as the decrease in the unemployment rate in the country. He noted the effectiveness of the current monetary policy of the RBNZ, adding that there are no grounds for its easing. As for the coronavirus epidemic, the head of the Central Bank did not panic. He acknowledged that the current situation carries certain risks, but he stressed that the coronavirus will only affect the monetary policy if the outbreak lasts "for a long period." Summarizing his speech, Orr said that low rates "remain a necessity", but he is not going to reduce them, at least within 2020. At the same time, he noted the growth of state budget expenditures, which "also give a certain confidence".
In other words, the results of the RBNZ first meeting were extremely optimistic. The kiwi logically shot up, reflecting demand across the market. Moreover, macroeconomic statistics also support the kiwi, as data released last week on the labor market reflected a decrease of 4% in the unemployment rate for the fourth quarter of 2019. It has a growth forecast of 4.2%. Meanwhile, the employment rate remained at the level of the third quarter (1%) on an annual basis. Wages also rose, as the level of pay in the private sector increased to 0.6%. In addition, quite tolerable data on the growth of inflation in New Zealand was published. According to the preliminary data, last year, consumer inflation in the country slightly exceeded forecasts, and amounted to 1.9% in the fourth quarter (in annual terms). It has a forecast of growth to 1.8%, and its previous value was 1.5%. This means that the indicator remained in the middle of the regulator's target range, exceeding even its forecasts (according to RBNZ expectations, inflation growth in the 4th quarter should have been only 1.6%).
In addition, the kiwi received quite good support from the fundamental background, as yesterday, it was even able to resist the US currency, who was strengthening in almost all pairs. During the Asian session on Thursday, despite the dollar's strong position, the upward momentum faded. This establishes that if the US dollar is weak, the kiwi will take revenge, and try to reach the nearest resistance level of 0.6500 (the average line of the BB indicator on the daily chart). In the short term, much will depend on today's release on the inflation growth of the United States. If the indicators disappoint, buyers of NZD/USD will once again seize the initiative for the pair, directing the price to the designated target.
