RBNZ

Inflation remains key sticking point preventing interest rate cuts from the Reserve Bank of New Zealand, ensuring Wednesday’s first quarter consumer price inflation report will be closely watched by financial markets, especially should it print on the softer side of expectations.

The Kiwi dollar is pushing higher, potentially reflecting no escalation in dovish rhetoric from the RBNZ despite New Zealand sitting in a double-dip recession. It has an inflation mandate and inflation remains too high to justify lowering rates yet.

While it may be one of the smallest G10 FX central banks, what the Reserve Bank of New Zealand (RBNZ) lacks in size it more than makes up for in terms of market punch, often sparking major moves in the New Zealand dollar under the leadership of Governor Adrian ‘Shock and’ Orr. Wednesday's interest rate decision may be no exception.

Tensions surrounding the Middle East has unsettled markets. US indices such as the S&P 500 are on track for their worst week of the year, crude oil reached a fresh YTD high and the risk-off sentiment was even enough to knock gold from its record. Traders therefore need to be on guard for headline risks surrounding the Middle East next week, alongside the usual bouts of economic data and central bank meetings.

It could be an interesting week for the Australian dollar if caught between the crossfire of the RBNZ meeting, Fed talk and US inflation data. We also have an Australian inflation report to throw into the mix for good measure.

The US dollar shows the potential to retrace some of the week's losses in light of hawkish Fed comments. Although attention now shifts to the US PCE inflation report, Australian CPI and RBNZ interest rate decision and press conference.

Having surged Friday on the back of a forecast from ANZ looking for an additional two hikes from the RBNZ, the NZD/USD has now given back those gains back following the latest RBNZ inflation expectation survey. What one hawkish forecaster giveth, 38 dovish forecasters have taketh away.

A late flurry of buying after New Zealand’s jobs report sent NZD/USD to the top of the G10 FX leaderboard on Tuesday, leaving in on track for another retest of the downtrend it’s been stuck in throughout the entirety of 2024.

NZD pairs were lower after the RBNZ hiked for a 12th consecutive meeting and signalled they may have reached a peak rate of 5.5%. At least for now.

The RBNZ (Reserve Bank of New Zealand) are expected to hike by another 25bp tomorrow, despite 1 and 2-year inflation expectations plummeting at their fastest pace since the pandemic.

New Zealander’s can breathe a sigh of relief that their rate of inflation is finally slowing, with both annual and quarterly CPI coming in much less than expected.

Not for the first time, the RBNZ surpassed market expectations with a 50bp hike, raising their cash rate for an 11th consecutive meeting to 5.25%.

Today’s 50bp hike suggests there are more hikes to come, but we note that they removed the 100bp increment from their debate and slowed their pace of tightening.

Whilst economists and market pricing favour a 50bp RBNZ hike on Wednesday, the potential for a 75bp hike is real.

As if 75bp was not enough, the RBNZ came out swinging by increasing their terminal rate much higher than we anticipated.

With the RBA only hiking rates by 25bps at each of the last two meetings, the RBNZ is the more hawkish of the two central banks.