Tomorrow, the August meeting of the Reserve Bank of New Zealand will be held, which will determine the fate of the Central Bank's monetary policy. However, according to most experts, the RBNZ will not present any surprises – the meeting will be "passing", without any sensations. However, NZD/USD traders are unlikely to ignore tomorrow's event. Now the pair is in a positional struggle for the 66th figure: bears are trying to pull the price to the support level of 0.6540 (the lower line of the Bollinger Bands indicator on the daily chart), while bulls are resisting, counterattacking bearish positions. Buyers need to stay within the 66th figure, and to do this, they need to gain a foothold above the mark of 0.6620 (the average line of the Bollinger Bands on the same timeframe). At the moment, the pair follows mainly the US currency, which also cannot determine the vector of its movement. But tomorrow's meeting of the RBNZ may become a determining factor for traders, at least in the medium term. And although the pendulum may swing in any direction, in my opinion, the New Zealand Central Bank will de facto be on the side of the "kiwi".
First of all, it should be noted that New Zealand is one of the first countries in the world to defeat the coronavirus. Last weekend, the country's Prime Minister, Jacinda Ardern, marked one hundred days without identifying new "non-exported" cases of infection inside the country. And although from a formal point of view, it is impossible to talk about the complete and unconditional surrender of the disease (there are still infected people in the country). At the moment, their number is equal to two dozen: 22 cases per 5 million people in the country. It is not surprising that the head of the WHO yesterday advised the world to follow the example of New Zealand in the fight against coronavirus – according to him, New Zealanders were able to stop the virus at an early stage of spread thanks to effective and, most importantly, timely quarantine measures taken. This allowed Wellington to restart the economy "ahead of schedule" – much earlier than many countries in the world. In other words, the process of restoring key macroeconomic indicators started earlier, and by and large only the general slowdown in the global economy serves as an anchor for the New Zealand economy.
New Zealand's main macroeconomic indicators have recently come out either in line with forecasts or better than expected. And here it is worth noting that many of them have lost their relevance, as they reflected the situation at the peak of the epidemic (in the second quarter). For example, traders were quite calm about the decline in inflation – in quarterly terms, the consumer price index fell into negative territory for the first time since 2016. In annual terms, a negative but predictable dynamic was also recorded – with the CPI expected to fall to 1.5%. And this decline is not supernatural: since 2017, New Zealand inflation has been hovering in the range of 1.3%-1.9%, so the current decline is quite acceptable. Moreover, the RBNZ's inflation expectations for the third quarter, published in July, rose from 1.2% to 1.45%.
A similar situation has developed in the labor market: according to the latest data, the unemployment rate in New Zealand has fallen to 4.0%. This figure has been hovering in the range of 4.0%-4.3% since the second quarter of 2018, so we can say that the coronavirus crisis has not left its imprint here.
Given all of the above, we can assume that tomorrow's meeting of the RBNZ will not be radically different from the previous one, which was held in June. Then Orr said that the rate can only be revised downward, while the Central Bank does not plan to tighten monetary policy for at least the next 12 months. He also did not rule out further expansion of QE "if necessary". At the same time, the head of the Central Bank said that it will regularly review the asset purchase program. He also repeated the standard phrase that the Central Bank is ready to use "additional monetary policy tools".
In June, Adrian Orr did not focus on positive trends in the country's economy. And most likely, it will not do this in August. For quite an understandable reason: the head of the Central Bank is not satisfied with the current exchange rate of the New Zealand dollar. In one of his interviews, he noted that the growth of the NZD/USD exchange rate has put additional pressure on export earnings, while the balance of risks for the economy remains downward. It is worth recalling that since May this year, the New Zealand dollar has strengthened against the US currency by almost 700 points.
Thus, the Reserve Bank of New Zealand is likely to repeat the main points of its June meeting tomorrow. Some of the experts assume that the regulator will expand the program for buying government bonds to 90 billion New Zealand dollars (at the moment, it is 60 billion) following the results of tomorrow's meeting. But in my opinion, the Central Bank only announces such steps, while implementing them only in September. The RBNZ's wait-and-see attitude, even without "enthusiastically optimistic" comments, will support the New Zealand dollar. This will allow buyers of NZD/USD not only to gain a foothold above the resistance level of 0.6620, but also to approach the key resistance level of 0.6700 (this is the upper line of the Bollinger Bands indicator on the daily chart). Therefore, longs can be considered either from the current position, or based on the results of tomorrow's meeting of the regulator's members.
