The Reserve Bank of New Zealand will hold its last meeting of 2022 on Wednesday. Unlike most of the leading central banks in the world, members of the RBNZ meet only seven times a year. That's why each meeting attracts the attention of NZD/USD traders. And the November meeting will not be an exception.
According to most experts' forecasts, the New Zealand central bank will raise the interest rate by 75 basis points, thus bringing it to 4.25%. Take note that the RBNZ raised the OCR rate by 50 points at the October meeting, as well as at the previous four meetings. However, at the final press conference, RBNZ Governor Adrian Orr admitted that they considered delivering a 75 bps hike. And yet the RBNZ was hesitant to accelerate the pace of monetary tightening, although it admitted that inflation was unacceptably high, so "there's still a lot of work to be done." As it turned out a little later, inflation is not only at a high level, but has no intention of slowing down.
The RBNZ's previous meeting was held on October 5, and the latest data on CPI growth in New Zealand was published on October 18. To the central bank's disappointment, the inflation rate soared again in the third quarter, significantly exceeding the forecasted levels. The consumer price index rose 2.2% in quarterly terms (against a forecast of 1.5%) and jumped to 7.2% year-over-year, against a forecast of a slowdown to 6.5%.
In addition, the latest monetary conditions survey conducted by the central bank was published in early November. It turned out that New Zealand's inflation expectations rose across the time curve in the fourth quarter of 2022. Specifically, average one-year inflation expectations jumped to 5.1% from 4.9% seen in the third quarter of this year.
Given this disposition, it is possible to assume that the RBNZ members will consider the 75 bps hike tomorrow. Moreover, according to most currency strategists of big banks, this scenario is currently the basic one. Its realization will support the kiwi, because the hawkish mood has intensified even after the inflation report. But if the central bank keeps the moderate pace of rate hikes (i.e. increases it by 50 points to 4.0%), the pair will be under a lot of pressure.
However, all indirect signs indicate that the RBNZ will decide to be more aggressive in curbing inflation. In that case, the NZD might get some short-term support against the greenback. However, upward surges in the NZD/USD pair should be used as a reason to open short positions. Moreover, the November FOMC meeting minutes will be released on the same day (i.e., November 23). This document can provoke a dollar rally, and the pair will not be an exception here. Even in case the OCR rate increases by 75 points.
Since November 14, that is, since last Monday, the pair has been trading in a wide-range 100-point flat, alternately going from the limits of the 0.6080-0.6190 range. The bears are not able to find a foothold within the 60s figure. The bulls are not able to test the 62nd figure. At the end of tomorrow the scales will tip in one direction or the other. And in my opinion, the US dollar is in a better position here. Traders have already played back the news that the Federal Reserve will slow down the pace of monetary policy tightening - now they are concentrating on the scale of tightening the monetary policy. And this issue is currently debatable.
In this context, the Fed's minutes, which will be published on Wednesday, is especially important. All the information of this document will be considered through the prism of the latest CPI growth report. The hawkish sentiment of most Committee members, the message that the final interest rate level will be higher (than previously expected) and the willingness to keep rates high even if inflation slows down - all these signals will greatly strengthen the dollar's position.
At the same time, the RBNZ's 75 bps hike in the OCR rate has already been partly factored into current prices. The very fact of the realization of the 75-point scenario is likely to have a short-term impact on the pair.
Thus, the upward price surges of the NZD/USD should be used as a reason to open short positions. The first bearish target is 0.6020 (the Tenkan-sen line on the one-day chart). The main target is slightly below, at 0.5950. At this price point the average Bollinger Bands line coincides with the upper limit of the Kumo cloud on the same chart.