RBNZ to hike by 25bp tomorrow prompting mean reversion in AUDNZD

At its first meeting of the year, the RBNZ is expected tomorrow to raise the Official Cash Rate by 25bp to 1%, the third hike in a tightening cycle that commenced in October last year.

New Zealand


Since the last meeting in November, developments in the labour market and inflation have surprised to the upside. Inflation at 5.9% is almost twice the top of the RBNZ’s 1-3% target band and is yet to peak with high oil prices and a soft currency translating into $3/litre petrol prices in some parts of the country.

There is a non-negligible chance of a 50bp hike; however, with the housing market softening and the Omicron surge just getting started, the RBNZ is expected to opt for 25bp. Russia’s decision today to send “peacekeeping” troops into two separatist republics in eastern Ukraine this morning is roiling markets and likely to cast the die in favour of a more conservative 25bp hike.

The MPS will also include the RBNZ’s revised OCR track, which is expected to steepen, reflecting the need for consistent interest rate hikes, taking the end rate closer to 3%.

In addition, the market will also be alert to commentary on the outlook for the RBNZ’s LSAP bond portfolio and guidance on balance sheet runoff, particularly around how it intends to run down its $50billion portfolio of bond holdings.

Turning to the FX market, the preferred way to play the rate hike is via short AUDNZD. As the chart below shows, the cross rate recently reached the top of a well-established trend channel near 1.0800, the target for a bullish AUDNZD trade idea most recently updated here.

To take advantage of the possibility of the cross rotating lower towards the middle of the trend channel 1.0600/1.0550 area, we would consider selling AUDNZD on a bounce to 1.0740 and place a stop on close at 1.0825. The profit target would be 1.0600/1.0550 region.

AUDNZD daily chart 22nd of Feb


Source Tradingview. The figures stated areas of February 22nd, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account