A "no-change" official cash rate release from the Reserve Bank is looking like a done deal, but the strong New Zealand dollar is looming as a potential headache for the bank as it works overtime to cushion economic blows posed by Covid-19.
The Reserve Bank, in an emergency response to the outbreak, cut its rate by three quarters of a percentage point to 0.25 per cent on March 16 and that's where it is expected to stay for the time being.
The bank has said it expects the decline in annual GDP to be the largest in at least 160 years, yet the New Zealand dollar, after slumping to US57c on March 20, has since then carried on as if nothing had happened, trading yesterday at US64.4c.
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A firming New Zealand dollar - in part driven by US dollar weakness - is exactly what the Reserve Bank does not want as it represents a tightening of monetary conditions at a time when it wants conditions to be loose.
A weak New Zealand dollar helps to stimulate the export sector as it puts more money in exporters' hands when they convert their overseas receipts back into local currency.
Reserve Bank Governor Adrian Orr is expected to acknowledge the positive surprise that was presented by New Zealand's early exit from its Covid-19 lockdown.
But he will also be at pains to point out that beyond that, the outlook remains extremely challenging.
ANZ said the bank would likely prefer the currency to be lower.
"But with New Zealand a relative 'good news story' and risk appetite still elevated, any jaw-boning is unlikely to have a lasting impact," ANZ said.
Westpac senior markets strategist Imre Speizer said it was not that the Kiwi was out of whack. "It's just much higher than they would have expected it to be."
Economists have taken some confidence from a raft of second tier, high frequency data, such as Trade Me job ads, that has pointed to an economy on the mend.
Hamish Pepper, fixed income and currency strategist at Harbour Asset Management and former senior analyst at the Reserve Bank, said there was no doubt the bank would like to see a lower Kiwi dollar.
"They would love to see it weaker, but of course that's probably the desire of most central banks around the world at the moment, because a weaker currency helps to stimulate economies."
Pepper said there was a danger that the statement, if it is skewed to the more positive side, would be seen as green light to the market for further currency appreciation.
"In some ways, they will have to work quite hard to deliver a non-market moving statement.
"I think the risks are towards them potentially delivering a message that is maybe balanced, when what the market is probably expecting is more dovish."
"I would expect them to play down some of that improvement in the economy, which came with the earlier than expected reopening," he said.
Uncertainty around the likely duration of the wage subsidy scheme would suggest a "not out of the woods yet" style of comment from the bank.
"Should they not take that kind of approach, and they spend too long on some of the more recent positives, then the market may take that and run with it," Pepper said.
Today's 2pm release is a statement only. There is no news conference, and therefore no opportunity for Orr to add to the tone of the bank's message.
BNZ economist Doug Steel said the currency had been moving close to the economy's fundamentals as a measure of optimism returned.
He said he would be surprised to see the Reserve Bank "take aim" at the currency.
"On its own it [the stronger Kiwi] is a tightening, but the question is whether that is justified by some of the improvement in the underlying health, or otherwise, of the economy," he said.
"Clearly the economy still needs a lot of support and it is getting a lot of support with lower interest rates, quantitative easing, and the massive fiscal package that has been unveiled," Steel said.
"The question is all around margin and balance, so a few cents here or there will not spook them too much."