The kiwi has started the week lower. as the USD firmed against a backdrop of higher US interest rates and shaky risk appetite. This week is all about the Reserve Bank of New Zealand (RBNZ) and Wednesday’s OCR decision. Economists at ANZ Bank expect a 50bp hike and a firm tone – that will likely support NZD.
NZD/USD to spike lower on a 25bp hike
“Markets are sure we’ll get a hike, but expectations remain split on whether we’ll see 25 or 50bps. We expect the latter on the grounds that if ever there was a need to act swiftly and firmly to head off rising inflation expectations, now is that time, despite growth risks.”
“We think currency markets will ‘reward’ a larger hike with a rally on the view that it’d cement the RBNZ’s inflation-fighting credentials and lessen inflation risks down the track. But with 43bps priced in, the bigger reaction would come on a 25bp hike (in which case, the NZD would likely spike lower).”