FX Daily: RBNZ joins the hawks

FX Daily: RBNZ joins the hawks

RBNZ preview: A closer call than markets expect

The desk anticipates a potential interest rate hike at the Reserve Bank of New Zealand's upcoming meeting on May 27, although it acknowledges that the RBNZ's tendency towards dovishness may lead to a 'hawkish hold'. Per the full note from ing-think, there is an underappreciated risk of tightening, with expectations suggesting the first of two hikes could occur as early as July. With external factors likely to drive NZD movements, market participants should remain vigilant. Supporting arguments for a hike include evolving inflation data suggesting underlying pressures and a global economic recovery, particularly as the RBNZ has previously suggested readiness to act if necessary. As such, new projections could indicate a tightening cycle starting in Q3, reflecting a shift in the central bank's stance. While the desk leans towards anticipating these hikes, it implicitly dismisses the counter viewpoint that favors a prolonged period of policy accommodation—arguing instead that inflationary pressures are likely to prompt action sooner rather than later.

RBNZ preview: A closer call than markets expect

The desk views the upcoming Reserve Bank of New Zealand (RBNZ) policy decision as more contentious than current market pricing suggests. Per the full note from ING Economics, the RBNZ's monetary policy deliberations could hinge on recent inflation data and the broader economic outlook, potentially challenging expectations for a steady approach. With the RBNZ's OCR currently at 5.50%, the risk of a hawkish surprise looms should inflationary pressures remain persistent, as highlighted by a recent CPI reading showing 6.1% year-on-year growth. The absence of scheduled economic events complicates the current landscape, leaving traders to navigate evolving macroeconomic indicators in lieu of formal guidance.

RBNZ expected to hold today but hawkish forecasts to signal rate rises ahead