Week Ahead: Hawkish RBNZ needed to keep NZDUSD up
In the final week of February, markets will continue to be guided by the shifting sands that is the Ukraine crisis, along with sharpening outlooks over the Fed rate hikes and the shrinking of its balance sheet.
Still, the RBNZ is set to jostle for attention amongst Kiwi traders, amidst these scheduled economic events and data releases:
Monday, February 21
- CNH: China loan prime rates
- EUR: Eurozone February Markit PMIs
- GBP: UK February Markit PMIs
- US markets closed for Presidents’ Day
Tuesday, February 22
- AUD: Australia weekly consumer confidence
- EUR: Germany February IFO business climate
- GBP: BOE member Dave Ramsden speech
- USD: US February Markit PMIs and consumer confidence
Wednesday, February 23
- NZD: RBNZ rate decision
- GBP: BOE Governor Andrew Bailey appears before Treasury Committee
- EUR: Eurozone January CPI (final print)
Thursday, February 24
- GBP: Speeches by BOE Governor Andrew Bailey, and BOE Chief Economist Huw Pill
- US crude: EIA crude oil inventory data
- USD: Weekly jobless claims and 4Q GDP (second print)
- USD: Fed speak – Cleveland Fed President Loretta Mester, Atlanta Fed President Raphael Bostic
- Alibaba earnings
- Moderna earnings
- Dell earnings
- Coinbase earnings
Friday, February 25
- EUR: 4Q GDP for Germany and France (final prints)
- EUR: Eurozone February economic and consumer confidence
- USD: US January personal income and PCE deflator, February consumer sentiment
The Kiwi has been the best-performing G10 currency against the US dollar so far in February.
However, zoom out to the weekly chart and you would immediately notice the downward trend that has persisted for NZDUSD, only managing a series of lower highs and lower lows over the past 12 months.
Focusing on the upcoming RBNZ decision, policymakers have ample reason to trigger a third consecutive 25-basis point hike to its official cash rate:
- Fourth-quarter inflation rose by 5.9% year-on-year, its fastest pace since 1990 and past the upper bound of the RBNZ’s 1-3% target range.
- Food prices rose by 2.7% in January – its most since January 2017.
- The 4Q unemployment rate has fallen to a record low of 3.2%.
- 2-year inflation expectations in this quarter have risen to 3.27%, its highest in over three decades.
Hence, looking at the overnight index swaps, another 25bps hike next week has been fully priced in, which would follow hot on the heels of similar-sized moves in October and November.
With markets already accustomed to such a narrative, the RBNZ has to sound extra hawkish in order to push the Kiwi higher.
A surprise 50-bps hike next week, or the signalling of more frequent rate hikes to come over the course of 2022, might just do the trick.
At the time of writing, NZDUSD is attempting to break above its 50-day simple moving average, also attempting to better its previous cycle high posted on Feb 10th. Still, it would require a sheer decline of the US dollar, or a tremendous surge in the Kiwi, for NZDUSD to reach the 50% Fibonacci retracement level from its end-October through end-January drop, with the pair’s 100-day SMA also lingering close by for added resistance.
NZD has also been weakening against the Australian dollar at a solid clip since November, though recent upward momentum has waned. An ultra-hawkish RBNZ could see this antipodean pair break meaningfully below the upward trend line that had supported AUDNZD in recent months.
Considering that both these economies are exposed greatly to extraneous factors, the speedier reopening of Australia’s borders relative to its neighbour further south may have contributed to AUDNZD’s recent gains. Australia is set to welcome fully-vaccinated tourists beginning Monday, 21st Feb, while the New Zealand is adopting a more cautious approach, with staggered stages between 28th February through October 2022.
Overall, an ultra-hawkish RBNZ could be the catalyst needed for Kiwi bulls, failing which, NZD should have a hard time erasing year-to-date losses against most of its G10 peers, except against the Swedish Krona.