New Zealand Dollar: With CPI Close to Forecast, RBNZ Rate Hike Expected – ING

An upside surprise in New Zealand’s 3Q CPI would strengthen expectations of an October rate hike, according to ING’s Francesco Pesole, who forecasts inflation easing to 3.8%, broadly in line with consensus and just below the RBNZ’s projection. Following hawkish RBNZ remarks, markets already price in a meaningful move. Meanwhile, NZD is viewed as undervalued relative to fair value, with NZD/USD expected to trade above 0.570 into year-end.

How will inflation shape the RBNZ’s decision?

"New Zealand releases important 3Q CPI figures overnight. We expect the headline to slow from 4.1% to 3.8%, in line with consensus and marginally below the RBNZ’s 3.9% projection. Any, even small, upside surprise will, in our view, consolidate expectations of an October hike further."

"Markets have been pricing around 18-21bp for next week’s meeting since RBNZ’s Chief Economist Paul Conway delivered hawkish remarks last week. He explicitly said this month’s decision is wide open, that he sees risk to the upside for 4Q CPI and that the NZD weakness is worrying."

"It felt like an attempt to drive market pricing higher, and barring a major surprise lower in CPI tomorrow, we expect a 25bp hike next week."

"NZD remains cheap relative to its short-term fair value model, and we expect it to keep recovering ground against its closest peer, AUD. We see NZD/USD trading above 0.570 into year-end."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)