The Reserve Bank of New Zealand (RBNZ) has hiked interest rates by 25bp and is set to push ahead with the tightening cycle. This should support the New Zealand dollar in the medium-term, however, NZD/USD could dip below 0.67 in the new few days, according to economists at ING.

RBNZ delivers a hawkish hike

“RBNZ delivered a 25bp rate hike but surprised on the hawkish side by revising its rate-path projections significantly higher. Incidentally, the bank announced the start of quantitative tightening through both bond maturities and managed sales of its holdings.”

“RBNZ is set to remain the most hawkish central bank in the G10 space, a factor that will offer NZD some good support in the medium-term.” 

“In the short-run, external factors (geopolitics, unstable risk sentiment in the run-in to Fed tightening) continue to pose downside risks to NZD and may soon offset the modestly positive post-RBNZ reaction in the currency.”

“NZD/USD may slip back below 0.6700 in the coming days.”