The Reserve Bank of New Zealand (RBNZ) is anticipated to maintain the Official Cash Rate (OCR) at 2.25% for the third time, as ongoing effects from the Iran conflict are weighing on economic growth and pushing inflation higher.
The RBNZ will announce its interest rate decision at 2:00 AM Japan time, alongside the Monetary Policy Review, Monetary Policy Statement, and meeting minutes. Following that, RBNZ Governor Dr. Anna Breman is set to hold a press conference at 03:00 GMT.
The New Zealand dollar (NZD) has been in a steady pattern against the US dollar (USD) since mid-April, and a notable market reaction to the RBNZ’s updates is expected.
What are your expectations for the RBNZ’s interest rate decisions?
Unless there are any surprises, analysts will be keenly observing the RBNZ’s revised OCR and inflation predictions, along with comments from Breman. These insights will help gauge market expectations for potential rate increases this year, especially in light of rising energy prices influenced by the US-Iran conflict.
“Currently, we are forecasting a 50 basis point tightening in 2026, largely dependent on energy market developments. The swaps market predicts 21 basis points in July and 75 basis points by year-end,” noted a foreign exchange strategist from ING.
However, with inflation expectations dipping back within the RBNZ’s target range of 2-3% and the economic output gap becoming negative, it’s uncertain whether the RBNZ will hesitate on rate hikes soon or respond with a surprise increase to preemptively address potential inflation spikes.
In April, Breman remarked, “We discussed rate hikes during today’s meeting,” although she also mentioned the committee “hasn’t yet observed price increases factored into inflation expectations.”
Nonetheless, she left room for possible rate adjustments by saying, “Tightening could occur at every meeting; it all depends.”
If no unexpected rate hikes occur, the OCR forecast will draw close attention. The Kiwi Central Bank stated in its February MPS that it expected OCR to be at 2.26% by June 2026 and 2.4% by the end of the year.
How might the RBNZ’s interest rate decisions affect the New Zealand dollar?
A downward revision of OCR forecasts, due to a weaker economic outlook, could be viewed as dovish, leading to increased selling pressure on the NZ dollar, potentially dragging the NZD/USD pair back toward the 0.5800 mark.
If Breman does not give any hints about tightening policies, the Kiwi dollar might face substantial selling pressure.
On the flip side, if the RBNZ unexpectedly raises rates, it could create a bullish scenario for the NZD. This would likely initiate a new trend reversal for the NZD/USD pair toward the notable threshold of 0.6000.
If the central bank opts for a cautious wait-and-see approach, as many expect, but raises this year’s OCR forecasts, it may be interpreted as a hawkish stance, which would also bode well for the Kiwi.
Dhwani Mehta, Asia Session Lead Analyst at FXStreet, provides a brief overview of the technical outlook for NZD/USD:
“The Kiwi pair currently sits below the 50-day simple moving average (SMA) of 0.5853 and the 100-day SMA of 0.5890, while hanging close to the 21-day SMA of 0.5894. This suggests that the market is encountering selling pressure. The Relative Strength Index (RSI) is around 46, just beneath the neutral mark of 50, indicating ongoing downside pressure, though it’s not in an oversold condition.”
“On the upside, near-term resistance appears around 0.5890 where the 21-day and 100-day SMAs cross. A clear breakout above this zone could reverse the near-term bearish bias and initiate an upward trend towards 0.5950 on the way to the 0.6000 mark. For downside support, the 200-day line at 0.5837 will be crucial. If the price dips below this, it may strengthen the downtrend and push the levels lower towards 0.5800 in upcoming trades,” Dhwani added.
