The New Zealand dollar is the best performing G10 currency on a one-day view after the messages of the Reserve Bank of New Zealand (RBNZ) in today’s policy meeting went beyond what the market had been expecting. This should cement a move higher towards 0.71 though NZD/USD may struggle to reach it if geopolitical tensions continue to remain the dominant theme, economists at Rabobank report.

Upping the ante

“The RBNZ hiked rates by 25 bp for a third consecutive meeting, in line with the Bloomberg survey of economists. That said, the committee made clear that the decision to announce a 25 bps rate hike rather than a 50 bps move had been finely balanced for many members. In addition to the rate hike, the RBNZ also announced that it would commence the gradual reduction of the Bank’s bond holdings.”

“Although we are forecasting a move higher towards NZD/USD 0.71 on a three-month view, this could be thrown off kilter if geopolitical news worsens and the safe-haven USD finds additional support.”

“In view of the far more cautious tone of the RBA, we do see scope for AUD/NZD to move lower. Our three-month AUD/NZD forecast stands at 1.03.”