Technical analysis: NZD 2022-11-21 15:43


RBNZ weighs 50 vs 75 basis points ahead of Wednesday. Market implied probabilities suggest roughly a 50% chance of either outcome
Quiet week on the economic calendar front with the NZ rate decision, Michigan sentiment and the FOMC minutes the most important scheduled releases
The mixed outlook is due to the evenly poised rate hike odds for Wednesday’s RBNZ meeting and the impact any forward guidance may have on NZD positioning at the time
The reasoning for the mixed outlook for the New Zealand dollar is due to the massively important Reserve Bank of New Zealand rate decision on Wednesday, which could offer up a surprise via the actual rate or the forward guidance, leading to an appropriate repositioning in the currency. Market implied probabilities assign a roughly 50/50 chance of a 75 bps and 50 bps rate hike, respectively - adding further to the uncertain outlook.

After last month’s meeting of the Monetary Policy Committee (MPC), Q3 inflation proved to be way hotter than expected coming in at 7.2% versus forecasts of 6.6%, unemployment remained tight at 3.3% and wage growth rose 2.6% QoQ. This would suggest that a 75-basis point hike appears likely. However, a deteriorating economic backdrop with lower global demand, continued Chinese lockdowns, a local housing downturn, and lower dairy prices (New Zealand’s main export) complicates the MPC’s decision next week.

The chart below composites the NZ official cash rate (blue line) against CPI inflation (orange bars) with the lower panel showing the rate of inflation declining over time. While this is a minor comfort, inflation still remains an issue at elevated levels.

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