NZD/USD: RBNZ’s raised OCR track to put a floor under Kiwi – ANZ

The Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) unchanged yet signalled that they may hike rates in 2024. Economists at ANZ Bank analyze how could the new track impact the New Zealand Dollar (NZD).

RBNZ’s track implies a hike in the first half of 2024

Technically, the RBNZ’s track implies a hike in the first half of 2024. That’s a long way from where the market is now (markets are still pricing in small odds of a cut by May), and as such, we do see some upside risk to rates. But we wouldn’t overplay that theme, mindful of the tendency of markets to front-run the RBNZ, and to swing with the global vibe, which has of late been all about central bank being done and cuts coming in 2024.

When we look at their projections in totality, and consider aspects like the 25 bps increase in the Bank’s estimate of the neutral OCR, that gives the impression of a central bank that is genuinely worried that the economy might be at risk of getting a second wind too soon, and that’s likely to put a floor under interest rates and the NZD.