According to ANZ Research, the performance of the New Zealand dollar against the US dollar and the British pound was poor on Thursday, but as the market reconsiders the outlook for New Zealand interest rates, the New Zealand dollar may perform better in the coming week.
In the research bulletin on Thursday, ANZ Research strategy analysts wrote, "We believe that recent data is not enough to prove that a rate cut is justified."
The next interest rate decision of the Reserve Bank of New Zealand will be held on August 14.
On Thursday, the New Zealand dollar against the US dollar and the pound struggled. Prior to this, an influential survey by the Reserve Bank of New Zealand showed that the two-year inflation expectations of enterprises in the third quarter fell to 2.03%, the lowest level since early 2021.
However, the New Zealand dollar appreciated against both currencies this week. On Wednesday, New Zealand announced that the second quarter employment data was better than expected, as employment unexpectedly increased and the unemployment rate rose less than expected.
"We suspect that the labor market data in the second quarter will give anyone who calls for an 8-point rate cut a reason to pause, especially when the probability of a rate cut is still around 50%. We still remain vigilant about how low rates can go. A rate cut is coming, but we believe it is too early for August and we may re-evaluate our expectations," ANZ economists said on Thursday.
They said that the resilience of the labor market means that the Reserve Bank of New Zealand is unlikely to cut interest rates next Wednesday. Therefore, the New Zealand dollar should benefit from the boost compared to the US dollar. The overnight index swap rate means that there is a 50% chance of a rate cut, which will reduce the cash rate to 5.25%.
Any further recovery of the New Zealand dollar against the US dollar may further suppress the pound against the New Zealand dollar. However, the weakening of inflation expectations means that there is still a possibility of a rate cut next Wednesday, which may boost the pound against the New Zealand dollar.
In July, New Zealand indicated that it may relax its policies soon, and after data showed that second-quarter inflation was unexpectedly lower than expected last month, the idea of a rate cut in August gained support. In the last quarter, New Zealand's inflation rate fell from 4% to 3.3%, lower than the expected 3.5%.
Daily chart of the New Zealand dollar against the US dollar.
At 11:17 on August 9th Beijing time, the New Zealand dollar against the US dollar was reported at 0.6028/30.