NZD - an event-driven tactical play on the RBNZ meeting

19 Feb 2023

The RBNZ meeting could be also one to put on the radar – the market prices 44bp of hikes here, and NZD implied volatility is priced higher than other FX pairs. While inflation is rampant in NZ, the announcement of the state-wide emergency in response to Cyclone Gabrielle could see the RBNZ look to reduce the blow to households, such as we saw for the support to the Christchurch earthquake. I am not sure that hits home and households feel the support on a below-expectations 25bp hike - so it’s either 50bp (consensus) and be the bad guys (but they have a job to do right?) or leave rates unchanged in my mind – the latter an outcome that could mean the NZD gets smacked off the bat – a compelling risk-reward event-driven view here when only 1 of 22 economists are calling for it, although I’d be getting out quickly on that.

A big double bottom in play - while the reaction to the RBNZ could be quick, as the statement will likely read hawkish, if price does below the neckline it could lead to better bear trending conditions.