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NZD Vulnerable If RBNZ Pushes Back on Hiking Bets
The market prices 100 bps of additional RBNZ hikes. Rabobank warns the Kiwi could slide toward 0.6000 if the central bank sounds less hawkish this week.
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The New Zealand Dollar has underperformed its G10 peers over the past month, sliding 4% against the greenback since mid-February. Investors are questioning whether the Reserve Bank of New Zealand will deliver the pace of tightening that markets have priced in, and Rabobank strategists said the Kiwi remains exposed if the central bank strikes a less hawkish tone at this week's policy meeting.
Markets are pricing roughly 100 basis points of additional rate hikes over the next 12 months. The RBNZ's own forward guidance, issued in February, pointed to a peak cash rate near 5.5%. Rabobank sees the gap between market pricing and that projected path as the main source of downside risk for the currency. The strategists argued the market has overestimated the central bank's appetite for further tightening, given slowing global growth and the lagged impact of the 450 basis points of tightening already delivered.
A dovish surprise at Wednesday's decision would force a repricing of those rate expectations, hitting the NZD's yield advantage. The currency could accelerate toward the 0.6000 handle if the RBNZ sounds cautious, the analysts said. New Zealand's inflation rate remains above 6%, and the housing market has shown signs of stabilising after last year's correction. The case for a hawkish hold is not trivial. Rabobank argues the RBNZ has less room to surprise on the hawkish side than the market assumes.
A more cautious RBNZ would also weigh on the Australian dollar through the trans-Tasman correlation, though the Aussie gets support from China's reopening and iron ore demand. The NZD-AUD cross has been trending lower and could test 0.9000 if the RBNZ underwhelms.
The decision is due Wednesday local time, with Governor Adrian Orr's press conference the key event for near-term direction. Rabobank noted that positioning data shows speculative shorts are already elevated, which could limit the downside if the RBNZ delivers a hawkish hold. The bigger risk, in their view, is that the market has overestimated the central bank's appetite for further tightening.