RBNZ poised to raise rates
The last time the RBNZ held a meeting was back in November, which seems like eons ago. RBNZ policy makers will meet on Wednesday, and a rate hike is widely expected, as the RBNZ moves to normalize policy. The most likely scenario is a 25-basis points hike, especially with the escalating crisis between Russia and Ukraine. The markets have priced in a 50-bps move at 30%. This will mark a third consecutive rate hike, as the RBNZ grapples with surging inflationary pressures, which have reached 40-year highs.
How far will the RBNZ go with its tightening cycle? There is a divergence of opinion from economists as to what will be the peak of the cash rate, with a range of 2.50%-3%. The RBNZ will be the first to admit that inflation and the tightness in the labor market have surprised to the upside. Inflation has hit 5.9%, almost double the upper limit of the bank’s inflation target of 3%. The outlook does not appear favorable for inflation easing anytime soon, with oil poised to break the USD 100 barrier and a weak New Zealand dollar.
Hopes of a summit between US President Biden and Russian President Putin were dashed on Monday after Putin announced that he would recognise two breakaway regions in Ukraine controlled by pro-Russian separatists. This was quickly followed by Russia sending “peacekeepers” into those areas, which means Russian soldiers and weapons are being moved into eastern Ukraine. The US and UK responded by declaring they would slap Moscow with sanctions but did not release any details. Despite the escalation in the crisis, investors have not run for the hills looking for safe-havens and the New Zealand dollar has risen sharply today.
- NZD/USD is putting strong pressure on resistance at 0.6752. Above, there is resistance at 0.6810
- 0.6615 is providing support, followed by 0.6536
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