The Reserve Bank of New Zealand decides Wednesday. A rise to 3% is expected, so the kiwi will move on what the Bank says about December.

What to expect

The Reserve Bank of New Zealand is expected to raise its cash rate for the third meeting in a row, to 3.00%. Because the rise is expected, the decision alone is unlikely to move the New Zealand dollar much. What the Bank says about its next move will. Since September, oil has run far above the Bank’s assumption, the kiwi has hit 17-year lows against its trading partners, and underlying inflation has climbed to the top of the target band. That leans the Bank towards keeping more rises on the table, which would support the kiwi. A rise that comes with talk of waiting would leave it weaker.

What these numbers are

Official Cash Rate (OCR): New Zealand’s main interest rate. Higher rates make the kiwi more attractive to hold.

Monetary Policy Review: the smaller of the Bank’s two meeting types. It brings a decision, a statement and a press conference, but no new forecasts. Those come with the full Statement on 9 December.

Guidance: what the Bank says about its next move. When a rise is expected, this is the part that can surprise.

What’s expected

Official Cash Rate: 3.00%, from 2.75%.

Guidance: another rise in December is left open but not promised. A split vote is possible.

Markets expect the rate to reach around 3.5% by February.

Rate forecast from the economic calendar; guidance from Westpac; February expectation from ASB.

Why it matters

In September the Bank raised the rate to 2.75% and said it “may need to increase further.” Four of the six committee members saw the risks to inflation tilted higher. Since then, three things have moved:

Oil: Dubai crude is near $110 a barrel, against the Bank’s assumption of about $84 for this quarter. New Zealand imports all of its refined fuel, so higher oil reaches prices quickly.

The kiwi: it hit 17-year lows against its trading partners in mid-October, which makes imports dearer.

Underlying inflation: headline inflation eased to 3.7%, below the Bank’s 3.9% forecast. But the trimmed mean rose to 3.0% from 2.6%, and the weighted median rose to 3.1% from 2.7%. Both are at or just above the top of the 1–3% target band.

Paul Conway, the Bank’s Chief Economist and one of the two members who saw the risks as balanced, said in mid-October that the decision was wide open, with a rise the more likely next move.

Jobs are holding the Bank back. Unemployment rose to 5.6% in the June quarter, the highest since 2015.

If they raise and point to more

That means a clear line that December is live, or a unanimous vote. It backs a path to around 3.5% by February and supports the kiwi.

If they raise and keep options open

This is Westpac’s central case: a split vote, and wording that says the path is not set. The kiwi’s move is likely to be small, and the press conference sets the direction.

If they raise and lean towards a pause

That means more weight on weak jobs, soft spending and spare capacity in the economy. The kiwi can fall even on a rate rise.

If they hold at 2.75%

This would be the big surprise. ASB warns that a hold would likely send the kiwi lower.

The lean

Hawkish. Most of what has changed since September points to higher inflation: oil, the weaker currency and underlying prices. Most of the committee already leaned that way. Jobs are the one thing holding it back. The likeliest result is a rise with December left open. Anything firmer than that supports the kiwi.

How to trade it

Before: getting flat. The rise is expected. If the kiwi has run up into Wednesday and sits stretched at the top of its range on the 4-hour chart, buyers have profit to protect against a cautious statement. That unwind is the trade, closed before the release. If the kiwi has instead been sold to an extreme, sellers face a rate rise and the unwind runs the other way. If it isn’t stretched either way, there is no trade.

At the release: no entry.

After: the reaction trade. Enter a day or two later, in the direction of the guidance rather than the rise itself. Close it before the general election on 7 November.

What comes next

7 November: general election. Westpac notes that a Labour-led government could add a jobs goal alongside inflation to the Bank’s mandate, which could slow the pace of rises.

9 December: Monetary Policy Statement, with new forecasts.

Sources

RBNZ: September decision · RBNZ: decision dates · Stats NZ: September quarter CPI · Westpac: CPI first impressions, core measures · Westpac IQ: October Review preview · Westpac: preview detail on oil, currency and election · Westpac IQ: September statement wording · Westpac IQ: June quarter jobs · InvestingLive: Conway · InvestingLive: ASB on a hold and the February path · Pound Sterling Live: 17-year lows, fuel imports, global shares · Elections NZ: 7 November