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AUD/NZD Outlook: RBNZ Event Volatility Amid Market Divide on Rate Hike

AUD/NZD Outlook: RBNZ Event Volatility Amid Market Divide on Rate Hike

Justin McQueen,
What's on this page

NZD/USD, RBNZ Price Analysis & News

  • Market Split on Whether RBNZ Hikes 25 or 50
  • Larger Hike to Pave the Way for AUD/NZD Pullback

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The upcoming RBNZ rate decision has shaped up to be a binary event, given the split between economists and market pricing on whether the central bank will hike 25bps or 50bps. According to Reuters, 15/21 see a 25bps hike, while the remaining 6 economists forecast a 50bps hike.

In my view, I lean towards a larger hike and thus expect the RBNZ to follow current market pricing. A reminder that at the prior meeting, the RBNZ had actively considered raising the cash rate by 50bps, highlighting that the decision was finely. Alongside this, the central bank dropped their rate guidance on using “considered steps” and instead affirmed their willingness to move the OCR in larger increments.

Now while there has been little in the way of key domestic data for market participants to digest as well as rising geopolitical tensions. There has been key developments from other central banks, most notably the Federal Reserve who have opened the door to a 50bps rate rise, which emphasises the new normal for inflation fighting central banks. What’s more, the RBA also appeared undeterred by the ongoing Russia/Ukraine conflict given their hawkish shift last week. Therefore, reinforcing my view that RBNZ go ahead with a 50bps rate hike.

NZD Positioning

Heading into the RBNZ meeting, leveraged funds have been selling NZD/USD, which may be more of a reflection of traders positioning for a hawkish Fed. However, when comparing with AUD/USD, traders have been covering their shorts and thus the better play for trading the RBNZ would be on the crosses as opposed to NZD/USD.

What I think could happen in the meeting

  • As noted above, I lean towards a 50bps hike, which in turn could prompt a knee-jerk move higher in the Kiwi. The better play is likely to be on the crosses vs JPY, while against AUD is also an option, given that I do not expect the RBA to raise rates at the May meeting. Going against market pricing. Explained here
  • The risk however, is the RBNZ sticking with a 25bps hike, which given market pricing, could lead to a sharp move lower in the Kiwi. As it stands, option implied volatility suggests a move in NZD/USD of around 60pips.

Source: Refinitiv

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  • RBNZ to hike 50bps, while the RBA hikes in June, going against current market pricing.
  • Multiple tops from 1.0900-50 is a tough resistance zone to crack. Meanwhile, momentum indicators (RSI) have not confirmed the recent higher highs.

AUD/NZD Chart: Daily Time Frame

Source: Refinitiv

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.