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On Wednesday, the Reserve Bank of New Zealand, kept its monetary policy unchanged as expected, surprising with a hawkish tone that boosted the NZD across the board.   According to analysts at Wells Fargo, the RBNZ’s announcement represents upside risk to their NZD/USD exchange rate forecast.

Key Quotes:  

“The RBNZ held its Official Cash Rate steady at 0.25% and kept the limit for its Large Scale Asset Purchase program at NZ$100 billion. However, in publishing conditional projections for the Official Cash Rate for the first time since the pandemic begin, the central bank signaled that interest rates could begin to rise from the second half of 2022, and that it might not fully utilize its NZ$100 billion purchase limit.”

“For us, given the clear policy signals offered by the Reserve Bank of New Zealand, we now expect at initial 25 basis point increase in the Official Cash Rate in Q3-2022, taking that rate to 0.50%.”  

“We highlighted an upside scenario for the NZ dollar in which any significant shift in the RBNZ’s policy bias (in a hawkish direction) could see the NZ currency gain close to $0.8000 over the medium-term. While our formal FX forecasts are unchanged for now, this week’s developments are clearly at least consistent with that upside scenario.”