The New Zealand Dollar is trading stronger after the RBNZ 50 bps hike was paired with a hawkish tone. The central bank could provide more support into the second quarter, but external developments will be the main driver, economists at ING report.

RBNZ stays hawkish

“The RBNZ's decision overnight was fully in line with our expectations: a 50 bps rate hike to 4.75%, a hawkish tone, and unchanged rate projections.”

“We still think there is a high risk that the 5.50% peak rate will not be reached unless the impact of the cyclone effectively stops the deflationary process.”

“Markets are pricing in 35 bps for the 5 April meeting. A 25 bps increase looks more likely, but we wouldn’t exclude one last 50 bps move before data deteriorate in the second quarter. This means that the RBNZ could offer support to NZD into the start of Q2, but we then think that a worsening in data and slower inflation should leave further NZD/USD upside heavily dependent on a favourable external environment.”

“We still target 0.67 by the third quarter.”