On February 22 at 01:00 GMT, the RBNZ will announce its interest rate decision. At the last meeting, the RBNZ took a very hawkish tone as it recognised that annual inflation was too elevated at 7.2%. This was the reason it hiked by 75 bps up to 4.25%. The question now is how will it respond at the next meeting?

Headline inflation remains elevated at 7.2% for January, but there are some signs of topping here. There was also some good news in that the 7.2% print was actually below the 7.7% that was actually forecast.

The main point to take from the RBNZ is that it is more fully focused on tackling inflation and a very hawkish bias has kept buyers propping up the NZD index from the 80.00 index level marked on the chart below.

RBNZ vs STIR markets

At the meeting last year, the RBNZ expected interest rates to reach a high of 5.5% in Q3 2023 which is up from the prior reading of 4.1% that was expected. STIR markets see a slight lower terminal rate of 5.30% which reflects the weaker labour data on January 31st and falling food inflation on February 13 down to 10.3% from 11.5% forecast.

The takeaway

The markets expect a 50bps hike, so if it hikes by only 25bps then expect an immediate upside in AUDNZD. If it hikes by 50bps and remains concerned about inflation that is only the base case. However, if it revises projections for future hikes even higher and/or hikes by 75bps expect immediate downside in AUDNZD. Note the key trend line on the monthly chart that can be used as a reference point.