By eFXdata — Jan 22 - 04:00 PM
Synopsis:
Following softer-than-expected Q4 inflation data, ING anticipates the Reserve Bank of New Zealand (RBNZ) will deliver easing a 50bps rate cut at its February meeting. While near-term NZD/USD support is possible, structural challenges and global USD strength could limit gains.
Key Points:
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NZ Inflation Data:
- Headline CPI held steady at 2.2%, slightly above market expectations of 2.1%.
- Non-tradable inflation fell faster than expected, down to 4.5% from 4.9%, below RBNZ’s November forecast.
- This marks the lowest non-tradable inflation since late 2021, signaling reduced domestic price pressures.
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RBNZ Policy Outlook:
- A 50bps rate cut is expected at the 19 February meeting, with markets fully pricing in this move.
- ING anticipates two additional 25bps cuts, bringing the policy rate to 3.25%, as the RBNZ aligns with global central banks prioritizing growth stabilization.
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NZD/USD Implications:
- Short-term support: NZD/USD may hold above the 0.570 mark due to technical factors and reduced tariff-related fears.
- Positioning dynamics: NZD remains the largest G10 short, as per CFTC data, which could limit immediate downside.
- Longer-term challenges: Broader USD strength, coupled with New Zealand’s easing trajectory, poses risks for sustained NZD/USD rallies.
Conclusion:
The softer inflation print paves the way for a significant frontloaded RBNZ easing cycle, beginning with a 50bps cut in February. While NZD/USD might find temporary support from positioning and reduced tariff concerns, ING maintains a cautious outlook, with structural factors likely weighing on the pair in the medium term.
Source:
ING Research/Market Commentary