NZD: A surprise dovish tilt by the RBNZ

The Reserve Bank of New Zealand surprised markets with a dovish tilt in communication as it kept rates on hold at 5.50% overnight, ING’s FX strategist Francesco Pesole notes.

Next week’s CPI report to help reverse NZD losses

“The Bank displayed greater confidence on disinflation in the statement, stating that “restrictive monetary policy has significantly reduced consumer price inflation” and that the Committee expects headline CPI to return to the 1-3% target range in the second half of this year. Incidentally, there were multiple mentions of slowdown in the economy and the labour market.”

“Our forecasts included one rate cut by the RBNZ in the fourth quarter this year, but we admit today’s statement tilts the balance towards at least two (60bp are priced in by year-end). Policymakers must have looked at some convincing evidence of upcoming disinflation to change their messaging today, but we continue to see some substantial upside risks to their non-tradable inflation forecasts.”

“An upside surprise at next week’s second quarter CPI report could help reverse NZD losses, and we remain generally positive on NZD this summer.”

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