ING’s FX Strategist Francesco Pesole expects the Reserve Bank of New Zealand to keep rates unchanged on 18 February but to revise inflation and policy rate projections higher, partly validating tightening expectations. ING forecasts two RBNZ rate hikes from 3Q, taking the policy rate to 2.75% by year-end, which should offer medium-term support to NZD/USD despite recent rapid appreciation and equity-market risks.

NZD seen supported by RBNZ tightening

"The next few quarterly prints may be a make‑or‑break moment for NZD. Another hot reading could leave the RBNZ with little choice but to start considering rate hikes later this year. However, the 1Q CPI report is only published on 20 April, and there are two RBNZ meetings before then (18 February and 8 April) that should offer some guidance on the policy path."

"Market pricing currently implies around 40bp of tightening by the end of the year, with 18bp priced for September, leaving expectations not far from our own call. Rate‑hike speculation has tended to generate an outsized positive currency reaction in Australia, and some hawkish signals at this February RBNZ meeting could see NZD outperform AUD in the near term."

"We see upside risks for NZD/USD after the meeting as well, although we remain cautious on further rallies given recent excessively rapid appreciation relative to short‑term drivers. Correction risks remain elevated in the current fragile equity environment. Still, in line with our medium‑term bearish USD view and expectations for RBNZ tightening, we forecast 0.62 by year‑end with upside risks."

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