NZD/USD: RBNZ needs to deliver 50bps hike and hawkish guidance to strengthen the kiwi – MUFG

The Reserve Bank of New Zealand (RBNZ) will provide their latest policy update in the week ahead. There is a high likelihood that the RBNZ delivers a larger 50bps hike which poses upside risks for the NZD, economists at MUFG report.

High hurdle remains for a hawkish RBNZ policy surprise

“The RBNZ would need to deliver a 0.50 point hike and encourage expectations for consecutive larger hikes to significantly lift short-term rates. The RBNZ is also expected to announce plans to begin shrinking their balance sheet from the middle of this year by selling assets of around NZD5-10bn/year.”

“In light of higher inflation, tighter labour market conditions, the buoyant housing market, and long gap since the last RBNZ policy meeting, we believe there is a high risk of a 0.50 point hike. It poses some upside risk for the NZD in the near-term.”