The world's major central banks are approaching the point at which decisions on monetary tightening and interest rate hikes are expected. New Zealand may take the first step towards a cycle of hikes. Australia has not decided on such a move.
The Reserve Bank of Australia, as widely expected, kept its main interest rate at a record low of 0.1 percent at its August meeting. It also kept its yield curve control program at 10 basis points until the April 2024 bond maturity and will continue its bond-buying program of $5 billion a week until early September and then $4 billion a week until at least mid-November.
In Australia, will rates not budge before 2024?
According to Australian bank officials, the latest wave of COVID-19 interrupts the economic recovery, Australia's GDP may fall in Q3. The economic outlook for the coming months is uncertain and depends on the health situation and containment measures. The bank assumes the economy will grow 4 percent in 2022 and about 2-1.2 percent in 2023. There was also a reiteration of the statement that the bank will not raise the interest rate until inflation is in the 2-3 percent range, a condition that will not be met before 2024.
New Zealand's expected move
In New Zealand, uncertainty over tomorrow's decision is added by the fact that a new case of Covid-19 has just been detected in the country and a three-day lockdown has been put in place as a result. This could negatively impact the New Zealand Dollar (NZD) today, which has fallen to near 0.6900 against the US Dollar, its lowest level in two weeks. Nevertheless, the Reserve Bank of New Zealand is still expected to raise rates at Wednesday's meeting, given concerns about an overheating economy and galloping house prices.
According to TD Securities, the Reserve Bank of New Zealand will raise the interest rate by 25 basis points, but the local positive Covid-19 case puts the OCR projection and other forecasts into question. It is too early to make a decision, but this case is unlikely to be an isolated one, so the prospect of more cases will grow, according to a TD Securities note cited by Bloomberg. The RBNZ is additionally expected to emphasize that health outcomes will be a major source of uncertainty for the economic outlook.The low vaccination rate may mean that expectations of future rate hikes will be limited.
In the FX options market, traders are pricing in a 72 percent probability that the NZD/USD exchange rate could be in the 0.6837-0.7057 range for the week.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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