The RBNZ is meeting on February 23 and here are four reasons to expect NZD strength heading into that meeting.
The headline inflation for New Zealand is high, coming in at 5.9%. This is a 31 year high! This is above the UK’s headline inflation level at 5.4% and only slightly below the US headline inflation. So, given that New Zealand inflation is higher than the UK’s, the EU’s, and Canada’s then inflation will keep giving the RBNZ reasons to stay hawkish.
Property is very expensive in New Zealand and a key driver of inflation. According to the OECD house prices have risen 28% y/y. That is a greater gain than Canadian, US, Norway and Australia’s house prices. This will mean that the RBNZ will want to try and cool this hot housing market. The best way to do this is by hiking interest rates.
Changing bias from investment banks
A series of investment banks have revised higher their OCR projections for the RBNZ over the last few weeks.
- ASB changed its RBNZ forecast to 2.75% by early 2023 (Feb 01).
- Kiwibank changed its RBNZ forecast to 2.50% by Nov 2022 (Jan 30).
- ANZ changed its RBNZ forecast to 3.0% by April 2023.
NZD looks very cheap
Despite these hawkish reasons for NZD gains the NZD has been pressured lower this year. So, heading into the RBNZ meeting there are plenty of reasons for the RBNZ to be hawkish as well as plenty of scope for the NZD to gain. This would favour AUDNZD downside out of the event or NZDCAD heading into the event if oil remains pressured.