Weekly Forex & Interest Rate Outlook

Expectations the RBNZ will signal a pause in June are growing and should weigh on NZD/USD this week. The RBNZ’s MPS on 12 June 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, and also signal a pause in the tightening cycle. This is expected by markets, although any implied lengthy pause would be a negative surprise for NZD/USD. The momentum of economic data in NZ is poised to slow, according to our data pulse model (Chart 2b). However, so too are US economic data surprises (Chart 2b). Thus, any decline in NZD/USD should be slow and gradual. Our target for the month ahead is 0.8530.