MUFG’s Derek Halpenny expects the Reserve Bank of New Zealand (RBNZ) to leave rates unchanged but deliver a hawkish message, with updated forecasts showing higher inflation and a higher projected Official Cash Rate (OCR). He argues that signalling two to three hikes this year would align with current pricing and could support NZD, especially if a US–Iran peace deal weakens the US Dollar (USD) and recent heavy speculative shorts continue to be reversed.

Hawkish RBNZ guidance eyed

"This RBNZ tomorrow will also release updated forecasts that will show higher inflation and a higher projected OCR rate for this year and next."

"The RBNZ does have a recent history of responding aggressively to inflation risks and we expect to see another hawkish message tomorrow that will help validate current market pricing."

"Given the bad data readings were mostly sentiment indicators that could turn around on a peace deal being reached, a signal of between two and three rate hikes this year from the RBNZ seems plausible."

"With around 70bps priced that would be broadly consistent with market pricing that should help support NZD positive momentum if the US dollar weakens back on a peace deal being reached between the US and Iran."

"NZD Leveraged Funds’ short position was pared to the week to last Tuesday after reaching the largest short since December 2019."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)