Weekly Forex & Interest Rate Outlook

Expected RBNZ behaviour plus the recent rebound in US sentiment should weigh on NZD/USD this week. The RBNZ will almost certainly increase the OCR by 25bp on 12 June but will probably also reduce its interest rate forecast due to weak inflation and the high NZD. That will depress short term interest rates and in turn, NZD/USD. Sentiment towards the US dollar rebounded late last week after ECB President Draghi signalled stimulus in June. In addition, US economic data surprises are at the strongest level since 2009 but the US dollar and US interest rates have not yet responded (Chart 2). There is potential for a lagged response, further boosting the US dollar. After reaching a four year high of 0.8780 last week, NZD has reversed and is heading towards multi-month support at 0.8530