At their last meeting, the RBNZ projected that their interest rate would be at 2.6% by 2023. This made the RBNZ the most aggressive central bank of the world’s major economies. However, the ANZ now see a case for the RBNZ to be even more hawkish at their next meeting. They forecast the RBNZ to raise their interest rate to 3.0% by April 2023. That is a far faster pace of rate hikes. The OiS is currently pricing in 100% probability for a 25bps rate hike on February 23rd from the current level of 0.75%.

The ECB by contrast has only an implied probability of one rate hike this year and is expected to move much more slowly on hiking rates. The bond yield spread between the NZ 10 year bond and the German 10-year bond is moving lower. Price normally follows the EURNZD lower, so should risk turn positive again the EURNZD looks set for some downside.

From January 25 to February 25 EURNZD has fallen 13 times in the last 15 years. Will EURNZD follow its seasonal pattern lower again this year in line with its seasonal pattern?

Major Trade Risks: The main risk for this outlook is on risk-off trading. The EUR has been a popular carry currency with ECB rates being so low, so when risk is off those trades unwind and the EUR gains in value.