ING: The NZD - FJElite

We expect the Reserve Bank of New Zealand to hike rates by 25bp to 2.75% tomorrow morning (announcement 0300 BST). Consensus is unanimous and markets are fully pricing in the move, so the impact on the New Zealand dollar will be highly dependent on whether the statement will still include firmly hawkish guidance, and on updated rate/economic projections.

We see some downside risks for NZD. Market pricing (95bp by June 2027) looks way too hawkish. To validate such expectations, the Reserve Bank would need to revise rate projections materially higher, as they currently embed only another 25bp hike for the next three quarters. We don't think they will, as we instead expect CPI projections to be revised lower on the back of softer oil prices.

We see NZD/USD trading back below 0.590 in the near term as the RBNZ may fail to meet hawkish expectations and USD finds some support.