Ultima Markets: [Market Hot Spots] Excessive New Zealand Monetary Policy Still needs to be lowered...

The New Zealand Federal Reserve will announce its latest interest rate decision this Wednesday. Against the backdrop of enormous downward pressure on the economy, it is highly likely that the New Zealand Federal Reserve will once again suspend interest rate hikes. On the other hand, the Bank of Canada may raise interest rates this Thursday25Base point to5%. The difference in monetary policy between the two may be enough to cause the New Zealand dollar to fall again against the Canadian dollar.

The New Zealand Federal Reserve, which may not dare to raise interest rates again

The New Zealand Federal Reserve has previously stated that it will remain on the sidelines after the aggressive tightening plan, waiting for the impact of earlier rate hikes to take effect. This kind of waiting is not unreasonable. The effectiveness of monetary policy has a significant lag, up to two years, and New Zealand is feeling the full impact of the previous interest rate hike.

Due to the recession in the New Zealand economy, the New Zealand Federal Reserve may be one of the central banks that has raised interest rates too aggressively. At present, New Zealand's household budget is facing increasing pressure. During the pandemic, the New Zealand government, in order to stimulate the economy, had extremely low mortgage rates, and the tightening of the currency eased household spending significantly.

Latest New Zealand10The yield of one-year treasury bond and2The yield of one-year bonds is also in an inverted state, and since6Since the beginning of the month, the degree of inversion has been continuously deepening, indicating that the market still has concerns about the overall economic expectations of New Zealand.

(New Zealand10Period and2Differences in yield trends of one-year bonds)

The Bank of Canada still needs to raise interest rates

Unlike the New Zealand Federal Reserve, inflation in Canada remains high. After five months of inaction, the Bank of Canada6Raise interest rates to22Annual high point4.75%Says that monetary policy restrictions are insufficient. Last Friday's employment report was clearly a sideshow of this wording, forcing the Bank of Canada to intervene in the economic cycle.

Canada6Monthly employment figures show Canada6Monthly employment increase6Ten thousand people, higher than expected2Ten thousand people; The unemployment rate has risen to5.4%And the salary increase was lower than expected.

(Changes in Employment in Canada)

The slowdown in wage growth means that the Bank of Canada does not need to raise its policy interest rate to5%Above. The current swap pricing shows that the Bank of Canada7month12Interest rate hike at the daily meeting25The probability of a base point is approximately6More than 10%, before data release56%。

Daily chart of New Zealand dollar to Canadian dollar, sourceUltima Markets MT4）

The exchange rate between New Zealand dollars and Canadian dollars7Strong month performance, recovered6The decline since mid month. It is worth noting that the market has already arrived0.827This price range is a supportive resistance position in the early stage, and bears may focus on this price range.

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