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NZD: RBNZ’s dovish bias was a surprise to markets – ING

He Reserve Bank of New Zealand surprised the markets with a moderate announcement in its communication by keeping rates at 5.50% overnight, says Francesco Pesole, strategist of ING FX.

Next week’s CPI report will help reverse NZD losses

“The Bank signaled increased confidence in disinflation in the statement, saying that “tight monetary policy has significantly reduced consumer price inflation” and that the Committee expects headline CPI to return to the 1-3% target range in the second half of this year. There were, by the way, multiple mentions of a slowdown in the economy and the labor market.”

“Our forecasts included one rate cut by the RBNZ in the fourth quarter of this year, but we acknowledge that today’s statement tips the balance towards at least two (60 basis points are planned by year-end). Policymakers must have seen some compelling evidence of coming disinflation to change their message today, but we continue to see some substantial upside risks to their non-traded inflation forecasts.”

“An upside surprise in next week’s second quarter CPI report could help reverse NZD losses, and we remain broadly positive on NZD this summer.”

Source: Fx Street

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