### RBNZ November Preview
New Zealand’s economic activity shows little sign of recovery despite significantly lower interest rates, with many sentiment surveys still languishing in recessionary territory. For the Reserve Bank of New Zealand (RBNZ), this underscores the urgent need for much less restrictive monetary policy.
– Inflation expectations anchored around the midpoint of its 1–3% target range
– Projected 175 basis points of rate cuts, urging for more aggressive policy
With projections for another 175 basis points of rate cuts this cycle, the board may be tempted to cut by more than 50 basis points with an 84-day gap between its November and February meetings. A truly jumbo cut next Wednesday could be the path of least regret to stimulate the economy over the summer.
### Go Big Before Summer Break?
The risk of a 75-basis-point cut looks underpriced ahead of next week’s RBNZ meeting, particularly given the bank’s history of surprising markets under Governor Adrian “Shock and” Orr.
– Swap markets put the probability at a little over 80% for a 50-point move
– Economists are also backing a 50, with 27 of 30 surveyed expecting a reduction to 4.25%
### Path of Least Regret
Caution around larger cuts is understandable, especially after the RBNZ moved from 25 to 50-basis-point reductions in September. However, the risk of hesitation when policy is clearly too restrictive outweighs concerns over market perceptions.
– Current rate 175 basis points above neutral
– Neutral cash rate estimated at 3%, but policy remains restrictive
### Assessing Inflation Reacceleration Threat
Citi’s Economic Surprise Index remains negative, showing data consistently underperforming expectations nearly three months into the easing cycle. While monetary policy operates with lags, the persistence of dire soft sentiment indicators is troubling.
– BNZ Performance of Services Index at 46.0, indicating contracting activity
– Leading indicators remain far below historical averages
### Domestic Rates Outlook Not Driving NZD/USD
While lower rates could lead to a temporary drop in NZD/USD, the analysis suggests that US rates have a stronger impact on the currency pair.
– Strong correlation between NZD/USD and US bond yields
– Inverse relationship with US yields over the past month
### NZD/USD Technical Picture
NZZ/USD looks heavy on the charts, hitting fresh 2024 lows earlier in today’s session. With the price in a downtrend, mirroring momentum indicators such as RSI (14) and MACD, it’s an obvious sell-on-rallies play.
– Near-term support levels at .5840, .5774, and .5600
– Resistance levels at .5912 and .6053 if the downtrend breaks
In conclusion, the RBNZ’s upcoming decision on interest rates could have a significant impact on New Zealand’s economy and the NZD/USD currency pair. By front-loading cuts and adopting a more aggressive approach, the bank may be able to stimulate economic activity and mitigate the risks of inflation reacceleration, despite the current challenging economic conditions. Considering the correlations between US rates and the NZD/USD, it’s essential to monitor both domestic and international factors when assessing the potential outcomes of the RBNZ’s policy decisions. Title: Unveiling the Best Investment Strategies for Financial Success
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Thorough Analysis:
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