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The Reserve Bank of New Zealand (RBNZ) is likely to maintain its monetary policy settings at its meeting on Wednesday at 02:00 GMT. Regarding the kiwi, NZD/USD has room to rise, although subject to US dollar’s dynamics and risk tone, FXStreet’s Dhwani Mehta briefs.  

RBNZ to stand pat, dismiss spike in inflation

“The RBNZ is expected to keep the Official Cash Rate (OCR) at a record low of 0.25% for the seventh straight meeting in May. The central bank is also likely to maintain the LSAP program at NZ$100B while keeping the Funding-For-Lending program (FLP) in place.”

“The recent positive fundamentals are likely to be well received by the RBNZ, as the central bank is widely expected to upgrade its economic assessments. Against this brighter economic outlook, the RBNZ is seen weighing the potential downside risks to growth. Further, uncertainty over overseas tourism re-opening up and New Zealand’s early stage of the vaccination campaign could prompt the central bank to maintain its monetary stimulus.”

“NZD/USD is seen extending its recent advance towards 0.7300 if the central bank’s projections on unconstrained OCR changes, in response to the upbeat economic developments. This could imply OCR hikes from 2023, sooner than the expectations of an early-2024 increase. However, if the RBNZ warrants caution on the employment growth and sounds dovish, NZD/USD could fall back towards 0.7150.”    

“With the US dollar under pressure due to easing inflationary concerns and dovish Fed expectations, any downside in the kiwi could remain limited.”