The Reserve Bank of New Zealand rate decision on Wednesday will attract market attention, as NZD/USD has been trading at three-week lows marginally above the 0.67 figure. It is widely expected that the central bank will take a more dovish tone, citing risks at home and abroad.
RBNZ survey for the first quarter of 2019 showed that 1-year inflation expectations declined below 2%. Last week’s labor market report was extremely bearish, with unemployment spiked sharply, rising to 4.3% against 4.1% expected. Employment rose by just 0.1% in Q4, while the labor cost index increased by only 0.5%, also short of expectations.
Considering the slowing growth and inflation at home, as well as external risks, including U.S.-China trade tensions and worrying signals from the global economy, the monetary authorities will likely take more downbeat rhetoric during the first meeting in 2019 and will keep rates on hold at a record low.
For NZD/USD, such a scenario implies further downside pressure. However, a dovish tone won’t be a surprise for traders as it is likely prices in already. So the bearish risks for the kiwi are limited from this event. In the short term, the pair could manage to hold above the 0.67 support as dollar demand seems to be easing after a spectacular rally since early February, though downside risks persist.