MUFG’s Derek Halpenny anticipates that the Reserve Bank of New Zealand (RBNZ) will keep interest rates unchanged but deliver a hawkish message, with updated forecasts indicating higher inflation and a higher projected Official Cash Rate (OCR) for both this year and next year [1]. Halpenny notes that the RBNZ has a recent track record of responding aggressively to inflation risks, and he expects another hawkish message that will help validate current market pricing [1].
According to Halpenny, a signal of two to three rate hikes from the RBNZ this year is plausible, which would align with the approximately 70 basis points currently priced in by the market [1]. This guidance could support positive momentum for the New Zealand Dollar (NZD), particularly if the US Dollar weakens in the event of a peace deal between the US and Iran and as recent heavy speculative shorts on the NZD continue to be reversed [1].
Halpenny also highlights that recent negative data for New Zealand were mostly sentiment indicators, which could improve if geopolitical tensions ease [1]. Additionally, leveraged funds’ short positions on the NZD were pared in the week leading up to last Tuesday, after previously reaching their largest short since December 2019 [1].
CONCLUSION
The RBNZ is expected to maintain rates but deliver a hawkish outlook, potentially signaling two to three hikes this year and supporting the NZD if market conditions align. Market pricing and positioning suggest the NZD could benefit from this stance, especially if external factors such as a US–Iran peace deal weaken the US Dollar.