Synopsis: 

ING foresees upside risks for the NZD ahead of the Q2 CPI print, despite the Reserve Bank of New Zealand's (RBNZ) recent dovish shift. They speculate that the RBNZ may have previewed the upcoming inflation figures, but ING's estimates suggest higher-than-expected non-tradeable inflation, a key determinant for policy.

Key Points:

• RBNZ's Dovish Shift: The RBNZ recently surprised markets with a dovish stance, potentially hinting at lower inflation expectations.
• Q2 CPI Estimates:
  • Consensus: Market expectations are for a 0.8% quarter-on-quarter growth in non-tradeable inflation and 0.5% QoQ for headline inflation.
  • ING's View: ING sees upside risks to these market expectations and the RBNZ’s projections, particularly for non-tradeable inflation.
• NZD Performance: The NZD has underperformed following the RBNZ’s dovish shift.
• Risk Balance: Given the recent underperformance of the NZD and ING’s higher inflation estimates, they believe the balance of risks is tilted to the upside for the Kiwi dollar in the next 24 hours.

Conclusion:

ING suggests that the NZD may see upside movement ahead of the Q2 CPI release, driven by potential higher-than-expected inflation figures. Despite the RBNZ's recent dovish stance, ING's estimates point to non-tradeable inflation possibly exceeding market expectations, positioning the NZD for gains in the immediate term.