Monday will bring volatility to the NZDCAD pair with a double inflation release.
NZDCAD: Weekly Chart
The price of NZDCAD has risen in the last week and created a bottom formation with the potential for further gains to 0.86 and 0.88.
Canadian inflation is expected to fall again to 3% from 3.4% this month after the aggressive rate hike strategy from the Bank of Canada. With central banks targeting 2% inflation, it is likely that the BoC is at the end of their policy efforts.
In New Zealand, the inflation rate is expected to drop to 5.9% from 6.7%, highlighting the differential between the two countries and the likelihood that more will come from the Kiwi central bank.
New Zealand’s central bank kept interest rates on hold at the last meeting for the first time in almost two years due to a weaker economy. The RBNZ’s Monetary Policy Committee held the benchmark rate at 5.5%, as expected by economists, after a run of 12 consecutive increases.
“Interest rates are constraining spending and inflation pressure as anticipated and required,” the RBNZ said in a statement. “The Committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range.”
New Zealand’s rate tightening has stalled economic growth, while surging immigration is taking the pressure off wage inflation. A recent slump in consumer spending may not reverse soon because many of the country’s fixed-term mortgages have not yet rolled into higher interest rates.
“We still see the RBNZ as done with tightening, though don’t expect a lower OCR until May next year,” said Nick Tuffley, chief economist at ASB Bank. “From here, the RBNZ will keep watching the data to confirm whether or not inflation is likely to decline in line with its expectations.”
Many economists believe that the RBNZ will still need to make one more rate increase this year to ensure that inflation reaches the 2% target. The Bank of Canada’s latest rate move led to a new forecast from Bank of America.
“These growth projections, along with Governor Macklem’s response in the press conference, suggest to us that the BoC leans more towards the “no-landing” camp for growth,” said Howard Du at BofA. The investment bank sees a moderate downturn by H1 2024 for developed countries that have aggressively raised rates over the past year, which includes Canada.
“Any downside surprise in the economic data before the next BoC meeting in September should lead to the rate market pricing out rate hikes for the rest of the year and for USD/CAD to retrace towards our Q3 forecast of 1.32,” says Du.
