The Reserve Bank of New Zealand is widely expected to raise the Official Cash Rate by another 50 basis points to 2.00% at its meeting tomorrow. The real focus will be on the accompanying Monetary Policy Statement (MPS), which will provide updated inflation forecasts and OCR track changes.
Inflation currently sits at 6.9%yoy, 30bps above the expected peak for inflation from February's MPS. Therefore, the RBNZs inflation forecast for near term inflation will need to be upgraded to 'around 7%'.
The RBNZ believes that aggressive rate hikes now will reduce the need for a longer tightening cycle and a higher terminal rate than otherwise would be needed. The OCR track will need to be updated to reflect the two 50bp hikes that have occurred since the last MPS (including tomorrows). The end point will likely be lifted from 3.35% to near 3.5%, still 50bp below what the interest rate market is currently pricing.
Although much of the inflation problem is supply-driven, the RBNZ need to tame inflation with the tools at its disposal, and the impact of higher mortgage rates is having the intended effect. The housing market and consumption are cooling, and business and household surveys have weakened.
Turning to the currency, after seven straight weeks of falls, the NZDUSD gained 2% last week despite a continuation of hawkish Fed speak, as the market moved to trim U.S dollar longs. Providing the NZDUSD can remain above the recent .6421 low, it should allow the NZDUSD to push higher towards a layer of resistance between .6570 and .6600c.
Source Tradingview. The figures stated are as of May 24, 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