The Reserve Bank of New Zealand (RBNZ) shocked markets with a dovish update during their monetary policy review for July, indicating a potential rate cut in response to lower inflation. The RBNZ expects inflation to return to the target range of 1 to 3 percent in the second half of the year, prompting speculation of upcoming rate adjustments. The RBNZ’s statement implied that monetary policy will need to remain restrictive initially before easing in line with expected declines in inflationary pressures.
Following the RBNZ’s announcement, market reactions were swift as NZD/USD dropped and the rates market priced in the likelihood of near-term rate cuts. The upcoming August meeting of the RBNZ is now being closely watched, with a 40% chance of a rate cut at that time. Additionally, upcoming CPI data from New Zealand will play a crucial role in determining the timing of any potential rate adjustments. In parallel, China also released its June inflation data, with a lower-than-expected headline CPI figure raising concerns of deflationary pressures and prompting calls for easing by the People’s Bank of China. The market response was evident as the yuan weakened, and USD/CNY hit a new high since November of the previous year.
