Giles Coghlan LLB, Lth, MA
Financial Source
The RBNZ hiked by 25bps to 5.50% in its May 24 meeting. Although the RBNZ maintained that interest rates would need to remain restrictive for the foreseeable future to achieve its inflation target, this could be the last rate hike for now as it maintained its peak rate forecast at 5.50%. That was the main takeaway from the meeting, and it surprised markets as the RBNZ wants to see if it can end rate hikes and tackle inflation by keeping interest rates at these sustained levels.
Inflation forecast
The RBNZ sees inflation continuing to fall from its peak, but it does note that the core reading of inflation is expected to be sustained. You can see that core inflation is still quite elevated and it is far from clear whether it has stopped rising or not, at 7.3% y/y.
Over the long term, the RBNZ is confident that inflation will fall back to 2% by 2025.
Demand is dropping
The RBNZ notes that consumer spending growth has fallen, construction activity declined, and house prices are now at more sustainable levels. Businesses are reporting falling demand, and the labor shortage is not the main constraint on business activity. So, the RBNZ feels confident to stop hiking rates now.
AUD/NZD outlook
This has opened up a sharp move higher in the AUDNZD pair as the RBNZ rate path diverges from the RBA. Looking at the overlay of the Australian and New Zealand bond yield spread, you can see that rate traders are signaling a shift in paths ahead. This should support the AUDNZD with buyers on the dips as long as the yield spread keeps heading higher. Watch incoming inflation data as if that surprises markets to the upside the RBNZ may have to go higher than originally intended.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.