NZD/USD to race higher towards 0.72 by year-end as RBNZ set to hike this fall – ING

The Reserve Bank of New Zealand (RBNZ) surprised markets by leaving its interest rates unchanged at 0.25%. Still, economists at ING expect two rate hikes by the end of the year. In turn, NZD should benefit from an attractive carry once sentiment improves.

See: NZD/USD to enjoy a fast recovery if COVID-19 is eliminated quickly – MUFG

Kiwi set to benefit from attractive carry in the longer run

“The RBNZ held rates unchanged at 0.25% today, but the policy statement and the projections included in the Monetary Policy Statement fell on the hawkish side of the spectrum.”

“Considering the RBNZ's hawkish tone, we have not changed our view that the RBNZ will raise rates by a total of 50bp by the year-end: we expect back-to-back hikes at the 6 October and 24 November meetings. We expect to see three more hikes in 2022, which would bring the OCR to 1.50% by the end of 2022.”

“Today’s hold from the RBNZ has left the NZD quite vulnerable in the short-run to external headwinds, but in the longer-term we expect the RBNZ tightening cycle to fuel a sustained rebound in the currency. This view is, however, highly dependent on some improvement in the global risk appetite and a revamp in interest for carry trades.”

“Our current 0.74 year-end estimate for NZD/USD looks less realistic after the recent deterioration in market sentiment, but a move to the 0.72 region in 4Q21 may still be on the cards.”