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After Wednesday’s surge, the New Zealand dollar is the fourth-best performing G10 currency in the year to date, after the CAD, GBP and the NOK. The Reserve Bank of New Zealand is hinted at the possibility of a post-pandemic interest rate hike. However, Governor Orr could attempt to push against the perceived hawkishness of the RBNZ if the value of the NZD continues to appreciate, economists at Rabobank report.

See:  NZD/USD  to see considerable gains toward 0.78 as RBNZ signals policy tightening – CE

Cash rate forecasts illustrate the first 25 bp hike in Q3 2022

“The RBNZ has made clear that any rate hike will be ‘conditional on the economic outlook’. Additionally, Governor Orr signalled a willingness to remain vague by commenting that ‘who knows where we will be by then’, in reference to Q3 2022.”  

“Clearly the direction of the pandemic and of the vaccine programme will be instrumental in dictating the outlook for the economy into next year and beyond, but it is likely that the RBNZ will also have one eye on the exchange rate.”  

“The RBNZ has previously been successful at knocking the value of NZD lower by announcing pre-emptive or larger than expected rate cuts. This suggests a strong focus on the NZD.”  

“Despite current expectations that the economy is recovering, both the PM and the Foreign Minister have recently warned exporters that trade with China could be impacted by the deterioration in relations between Wellington and Beijing. This also suggests headwinds for the economy and concerns about exchange rate appreciation.”

“In light of the hawkish outlook on rates by the RBNZ we have raised our 3-month forecast for NZD/USD very moderately from 0.72 to 0.73.”