- The Reserve Bank of New Zealand is set to hike OCR by 75 bps to 4.25% in November.
- All eyes will be on the updated OCR track and RBNZ Governor Adrian Orr’s press conference.
- NZD/USD remains a ‘sell the fact’ trade but risk sentiment holds the key.
The Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr’s "laser-like" focus on controlling inflation is set to break the bank’s habit of raising its lending rate by 50 basis points (bps) on Wednesday when the central bank’s board members meet to decide on their next monetary policy move.
A 75 bps Reserve Bank of New Zealand rate hike is fully baked in
The Reserve Bank of New Zealand is widely expected to increase the Official Cash Rate (OCR) by 75 bps from 3.5% to 4.25% on November 23, which would be the first super-sized rate hike after five consecutive 50 bps moves. This policy announcement will be followed by a press conference with RBNZ Governor Adrian Orr.
Economists expect the Reserve Bank of New Zealand to lift the cash rate by a record 75 bps while money markets wager a roughly 65% probability for the biggest-ever rate point hike this month.
Why does there seem to be a clear case for an outsized rate increase? New Zealand’s annualized Consumer Price Index (CPI) rose by 7.2% in September 2022, a slight fall from August’s print, according to Stats NZ, but still higher than experts thought. The critical inflation gauge surpassed the market consensus of 6.5% by a big margin. The latest RBNZ survey showed that the one-year-ahead and two-year-ahead inflation expectations increased to 5.08% and 3.62%, respectively.
The RBNZ has also changed its message: at its October policy announcement, the Reserve Bank of New Zealand said that the committee considered whether to increase by 50 or 75 bps during the meeting as against the previous policy statement that mentioned that they “did not consider 75 bps rate hike today,” explaining that “50 bps moves have been orderly and sufficient.”
With the critical Consumer Price Index having quickened at the fastest pace since the June quarter of 1990 and amid the central bank’s debate over a 50 or 75 bps rate hike, markets are convinced that the Reserve Bank of New Zealand needs a bigger rate increase to bring down inflation.
Another reason for the Reserve Bank of New Zealand to go big on the OCR rise is that there is a three-month wait until the next central bank meeting, which will be in February next year.
The RBNZ’s updated economic forecasts in its Monetary Policy Statement (MPS) will be closely scrutinized too, now that a 75 bps rate hike is widely anticipated. A revision to the prospective trajectory of the Official Cash Rate will hold the key as also the forecasts for peak inflation. The Overnight Index Swaps (OIS) pricing points to a peak rate of just above 5%, at the moment.
Trading NZD/USD with Reserve Bank of New Zealand decision
NZD/USD could fall back toward the 0.6000 threshold on a ‘sell the fact’ effect should the Reserve Bank of New Zealand conform to the market expectations of a super-sized lift-off.
In case the central bank unexpectedly hikes rates by 50 bps and revises down the OCR track, the NZD/USD pair could also break its recent consolidative phase to the downside.
The pair needs an upward revision to the RBNZ rate hike trajectory and hawkish rhetoric from Governor Adrian Orr to resume its march toward 0.6250.
However, risk sentiment and the US Dollar dynamics, at the time of the policy announcement, could have a significant impact on the pair's reaction to the RBNZ verdict too and need to be taken into consideration when positioning for any moves.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD rises toward 1.0800 as USD weakens
EUR/USD has gained traction and advanced toward 1.0800 in the early American session on Monday. The positive opening witnessed in Wall Street makes it difficult for the US Dollar to find demand and helps the pair continue to push higher.
GBP/USD closes in on 1.2300 as mood improves
GBP/USD has preserved its bullish momentum and advanced to the 1.2300 area in the second half of the day on Monday. The risk positive market atmosphere makes it difficult for the US Dollar to stay resilient against its rivals and fuels the pair's daily rally. Eyes on BOE Governor Bailey's speech.
Gold recovers above $1,950, stays deep in red
Gold price has managed to stage a modest rebound in the American trading hours and rose above $1,950 from the daily low it set at $1,944. The benchmark 10-year US Treasury bond yield is still up more than 3% despite having retreated from session highs, not allowing XAU/USD to gain traction.
Four reasons why SUSHI holders will have a bullish week despite SEC's move
SushiSwap price undid the early March gains in the last week after the SEC subpoenaed the platform’s head chef Jared Grey. As a result of this announcement, the token collapsed by roughly 18%.
Alibaba (BABA) edges higher after Jack Ma returns to China for AI talk
BABA shareholders begin the week with a glimmer of hope after founder Jack Ma was seen visiting China after spending more than one year abroad. The report originally led to Alibaba's shares in Hong Kong rising 4% before subsiding.