New Zealand Dollar: Is downside limited following the RBNZ surprise? – OCBC

Further downside in the New Zealand Dollar (NZD) should be limited by the prospect of tighter policy, according to OCBC strategists Sim Moh Siong Christopher Wong. The currency declined after the Reserve Bank of New Zealand (RBNZ) surprised markets by leaving the OCR unchanged at 2.75%. Policymakers continue to signal tightening ahead, with two additional hikes expected in December and 1Q27. Following the sell-off, 0.5600 is the key near-term level to watch for NZD/USD.

Does the RBNZ pause leave its hawkish stance intact?

"The NZD sold off sharply after the Reserve Bank of New Zealand October Monetary Policy Review unexpectedly voted 4-3 to hold the OCR at 2.75%, defying widespread expectations for a 25bp hike."

"Notably, Governor Anna Breman voted with the majority to hold, while Chief Economist Paul Conway backed a hike. The majority preferred to give the July and September rate increases more time to work through the economy, particularly with domestic demand still subdued."

"Still, the decision was more of a pause than a dovish pivot. The RBNZ said tighter monetary policy is likely to be required, although the timing remains data-dependent. Attention now shifts to December."

"We continue to expect two further hikes, in December and 1Q27, which should limit further NZD downside. For NZD/USD, 0.5600 remains the key near-term level to watch after being tested around the decision."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)