NZD/USD: Vulnerable to disappointment unless RBNZ signals further larger 50bps hikes – MUFG

NZD/USD has risen back above the 0.6450 level ahead of the Reserve Bank of New Zealand (RBNZ) policy meeting. However, economists at MUFG Bank expect the kiwi to remain under pressure unless we see a hawkish policy update.

Fundamental case for further policy tightening remains compelling

“The performance of the New Zealand dollar in response to this week’s policy meeting will likely depend upon whether the RBNZ signals that further larger 50bps hikes are likely at upcoming policy meetings. Without such a hawkish policy signal, the kiwi is vulnerable to disappointment.”

The fundamental case for further policy tightening in New Zealand remains compelling. The latest CPI and labour market reports both continued to reveal building inflation pressures. In particular, average hourly earnings have recorded their strongest rate of increase over the last two quarters to Q1 since Q3 2006. It keeps pressure on the RBNZ to keep tightening policy.”