Early Wednesday at 01:00 GMT market sees the key monetary policy decision by the Reserve Bank of New Zealand (RBNZ) amid hopes of a hawkish play.
Despite the return of higher covid numbers at home, firmer economics and broad inflation fears push the RBNZ policymakers towards a third consecutive 0.25% increase to the benchmark interest rate, currently around 0.75%.
Although such a rate-hike is already much-talked, recent geopolitical tensions surrounding Russia and Ukraine join some optimists calling for 50 basis points (bps) of a rate-lift to make today’s RBNZ Interest Rate Decision interesting for the NZD/USD traders.
Also in the publishing line are the economic projections and Governor Adrian Orr’s speech to watch.
Ahead of the event, Australia and New Zealand Banking Group (ANZ) said,
Market expectations continue to favor a 25bp (rather than 50bp) RBNZ OCR hike today; if delivered, that should provide a fairly solid base for the NZD on the view that measured hikes will be more digestible for the economy and are less likely to deliver a hard landing.
On the same line, TD Securities mentioned,
We expect the RBNZ to lift the cash rate by 25bps but we do acknowledge there is a chance the Bank could hike by 50bps - the Bank's Nov'21 OCR forecast track implied a 50bps hike in Feb'22 and price pressures remain.
Considering the market consensus, FXStreet’s Dhwani Mehta said,
On the interest rate decision, NZD/USD could see some initial reaction, depending on the dovish or hawkish outcome. The currency pair could see a ‘sell the fact’ trade unfold if the RBNZ delivers the expected 25 bps hike. The kiwi could correct sharply towards 0.6600. On a 50 bps surprise rate increase, the pair could receive a much-needed shot in the arm, which may trigger a fresh upswing towards January highs above 0.6800.
How could it affect NZD/USD?
NZD/USD grinds higher at monthly top following the six-day winning streak during the early Asian session on Wednesday.
The kiwi pair’s recent up-moves could be linked to the market’s hawkish hopes from the RBNZ, as well as the US dollar’s pullback amid mixed concerns over the Fed’s next moves. However, the bulls remain challenged by the faster spread of geopolitical fears.
Hence, the bulls keep reins ahead of the key event but the road to the north seems rather bumpy.
That said, a 25 bps rate hike is a well-known and priced-in action from the RBNZ policymakers. As a result, the NZD/USD prices may fail to extend the latest advances on either a negative surprise or matching the market forecasts. However, a 0.50% rate lift can help the pair buyers to consolidate heavy losses marked in November.
Other than the rate decision, RBNZ Governor Orr’s comments will also be important for near-term NZD/USD direction as hints for faster monetary policy tightening, or justification of the latest moves, can favor the pair buyers even if the rate hike fails to impress them on the initial readings.
Technically, NZD/USD remains stable above the key resistance confluence comprising 50-DMA and a descending trend line from October 2021, now support around 0.6730. The bullish breakout joins upbeat RSI and MACD signals to keep buyers hopeful of challenging the 0.6800 round figure. However, the 100-DMA and January’s peak, respectively near 0.6860 and 0.6890, will challenge the bulls afterward. Alternatively, pullback moves remain elusive beyond 0.6730, a break of which will direct NZD/USD bears to December 2021 low surrounding 0.6700.
Keynotes
NZD/USD: RBNZ to distract traders momentarily from Ukraine crisis-risk
About the RBNZ interest rate decision and rate statement
The RBNZ interest rate decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the NZD. The RBNZ rate statement contains the explanations of their decision on interest rates and commentary about the economic conditions that influenced their decision.
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