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Jan 22 - 06:55 PM

ING: What We Expect from the RBNZ and NZD/USD After NZ Latest Inflation Data

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:

  1. 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.
  2. 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.
  3. 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

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