The Reserve Bank of New Zealand has much work to do and has been meeting on Tuesday to decide on its official cash rate.
Some analysts say that hiking in 25bps increments at consecutive meetings won't fit the bill. Therefore, at 02:00 GMT, it will be known to markets just how far the central bank needed to lift rates to combat inflationary headwinds pertaining to the Omricon disruptions and the Ukraine crisis.
''The Bank now needs to hike in 50bps increments at its next two meetings. We see no compelling reason for the Bank to await incoming data before deciding to act more aggressively,'' analysts at TD Securities explained.
''We remain of the view that a 50bp hike will be better received on grounds that it’ll add to RBNZ credibility and cap inflation down the track. Whatever the decision is and however it reacts, that could all be short-lived given the global backdrop,'' analysts at ANZ Bank argued.
''As in February, it’s likely to be a tough call between a 25bp and a 50bp hike,'' analysts at Westpac viewed in a more balanced outlook.
''That won’t be helped by the unusually light data flow between reviews. The data that we have had suggests that near-term inflation is a growing headache for businesses and households. But it also shows that monetary policy moves to date are getting the intended traction via the housing market. The RBNZ has given little guidance as to how it might view recent developments. But its decisions to date suggest that the hurdle for larger OCR hikes is quite high.''
How will NZD/USD react?
The Kiwi has been trading to non-specific domestic-related noise of late. For instance, on Tuesday, it rallied to a handful of pips away from 0.69 the figure. The antipodeans have been responding to the bounce in energy and broader commodity markets of late in light of how badly the peace talks have been going between Russia and Ukraine.
However, that will all be set aside for the RBNZ today, if only momentarily. ''We remain of the view that a 50bp hike will be better received on grounds that it’ll add to RBNZ credibility and cap inflation down the track. Whatever the decision is and however it reacts, that could all be short-lived given the global backdrop,'' analysts at ANZ Bank said.
The levels to watch for are pinpointed on the daily chart as follows:
NZD/USD daily chart
0.6820 on the downside and 0.6890 on the upside are critical levels that likely guard breakout territories for the days ahead.
About the RBNZ
RBNZ Interest Rate Decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the NZD.