There are reasons for potential EURNZD weakness heading into the RBNZ rate meeting this week on February 23.
New Zealand Dollar
The New Zealand dollar has been the weakest currency of the G8 this year. This is despite the RBNZ having arguably the most hawkish outlook with the RBNZ’s last projection seeing rates at 2.6% by 2023. Since that last meeting, a string of investment banks has brought forward expectations of faster rate hikes by the RBNZ.
The euro has seen recent strength from early Feb’s ECB rate meeting. However, a number of ECB central bank speakers have wanted to push back against a specific timescale for a first ECB rate hike. That means that some of the initial enthusiasm in buying the euro has seen some pullbacks. That could help EURNZD weakness into the RBNZ rate meeting this week
Major Trade Risks:
- Any breakdown in the Russian/Ukrainian geopolitical risk event could see highs beta’s like the NZD lose value.
- Any surprise hawkish comments from the ECB should boost the euro.
- Any extreme dollar moves can also impact the euro. e.g. strong USD safe-haven flows on geopolitical risk.