The RBNZ is meeting on November 24. New Zealand has record-high employment data and strong inflation pressures.

The Q3 inflation rose at its fastest pace in 10 years with the annual inflation rate moving to 4.9% from 3.3% in Q2. The unemployment rate is down to very near record lows at 3.4%.

This has meant that expectations are now high for a possible 50bps interest rate hike coming from the RBNZ next week. Westpac now expects the RBNZ to move interest rates up to 3% in 2023. ANZ is forecasting the RBNZ to raise interest rates to 2.0% neutral rate by the end of 2022.

The fall in the JPY has been due to all the world’s central banks being expected to raise interest rates to counter surging inflation. The one central bank that is not expected to respond is the BoJ. This means that there is a diverging expectation of central bank action heading into the RBNZ meeting favouring NZDJPY gains. On top of this, the NZDJPY pair has some great seasonals too.

Over the last 10 years, the NZDJPY has risen 90% of the time between November 16 and December 31 with an average return of 1.95%. The largest gain was in 2016 with a 4.89% rise. The largest loss was in 2017 where NZDJPY registered a -0.34% loss.

Major Trade Risks:

  • A sharp change in the outlook for New Zealand could change this outlook.
  • Any strong risk-off trading on an Evergrande default could change this outlook.