Despite lacking the backing of fossil fuel exports, the New Zealand dollar has been one of the better performing commodity currencies this year. The Reserve Bank of New Zealand (RBNZ) meets on Wednesday to set interest rates. The focus will be on whether the RBNZ chooses to hike 25bp or 50bp. As economists at ING note, NZD/USD could dip to the 0.6720/6780 zone after the decision.

RBNZ expected to hike 25bp 

“Most are expecting the fourth 25bp hike, which will take the OCR policy rate to 1.25%. A few economists and the money markets believe the chances of a 50bp hike do exist as well. Holding the RBNZ back from 50bp may be the fact that this is not a meeting backed by a Monetary Policy Statement (where it might be easier to explain a 50bp adjustment) as well as the recent dip in consumer confidence.”

“With the US dollar expected to stay strong, there could be some downside risks to the New Zealand Dollar tomorrow should the RBNZ do 25bp and not provide more meat to market expectations which look for the policy rate above 3% by the end of the year.”

“A correction in NZD/USD to 0.6720/6780 looks the risk. But, medium-term, we expect NZD/USD can advance to the 0.71/73 area.”

See – RBNZ Preview: Forecasts from six major banks, surprising with a double shot hike?