The NZD should remain bought into the RBNZ meeting this week with OiS swaps pricing looking at a 100% probability of a 25bps hike to 0.75%. Furthermore, some analysts think that the RBNZ could surprise with a 50bps rate hike.

Inflation is red hot

New Zealand Q3 inflation has risen at its fastest pace in 10 years with the. The annual inflation rate has now moved up to 4.9% from 3.3% in the second quarter. Last Thursday New Zealand 2yr inflation expectations moved up to 2.96% for Q4 vs 2.27% previously.

Lockdowns ending

The NZD has been supported on the news that New Zealand is planning to lift its lockdown restrictions at the end of November.

Employment figures are good

The unemployment rate down to near-record lows at 3.4% and employment is up 2% and the participation rate was higher as well.

RBNZ hawkish

Last Thursday the RBNZ says OCR expectations continue to increase in the short and medium-term. ASB bank now sees the possibility of a 50bps hike.

Trading the event

Heading into the meeting the NZD should find buyers. However, at the event, watch out for a buy the rumour sell the fact response if the RBNZ only do what the market was expecting them to do. This happened after the last expected RBNZ rate hike. For the NZD to continue rallying out of the meeting the RBNZ will need to take a more hawkish tilt.


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