The New Zealand Dollar has been moving higher recently in line with the more bullish outlook from the RBNZ in October. In that meeting, the NZD had not been very responsive to its underlying fundamentals. However, the NZD has been moving as you would expect after the last RBNZ meeting as the NZD rose on a more hawkish outlook from Governor Orr and his team.
Governor Orr’s re-appointed for another 5 years
On November 7th, Governor Orr was appointed for another 5 years, and only recently Governor Orr noted that he has a laser focus on returning inflation to the 1-3% target. In early November unemployment for New Zealand remained at 3.3%, but employment for the quarter rose to 1.3% q/q. This strength in the New Zealand market has increased expectations of a wage-price spiral and should keep the RBNZ on its aggressive rate-hiking cycle. It added to the expectations that were already in place after the headline inflation rate hit 7.2% y/y on Monday 17th October and 2.2% q/q.
November 23 meeting
Short Term Interest Rate markets are currently seeing a 69% chance of a 75 bps rate hike and a terminal rate of just under 5.44%. See below for Financial Source’s implied interest rate curve for the RBNZ.
The NZD is trading where it should be, which is in line with higher interest rate expectations after firmer inflation and good jobs data. From a monetary policy perspective, the RBNZ meets on November 23rd and if it hikes by only 50bps then it would be reasonable to expect some possible short-term NZD downside expressed through an AUDNZD upside bias.