New Zealand economists trimmed inflation forecasts to 2.1% but maintained RBNZ rate-hike expectations, driving a modest rally in NZD/USD and a selloff in short-maturity government bonds as services inflation stays elevated.
New Zealand economists trimmed inflation forecasts but still expect RBNZ rate hikes, supporting the NZD. The kiwi climbed to 0.6150 as markets priced a 70% chance of a July hike. However, the softer inflation trajectory limits aggressive bullish bets.
The kiwi may grind higher toward 0.6200 as markets price in a 70% chance of an RBNZ hike next month, but the upside is capped by the softer inflation trajectory.
A sudden drop in global risk appetite, a faltering Chinese economy, or a more dovish-than-expected RBNZ statement could push the pair back toward 0.6080 support.
Expectations of RBNZ rate hikes push New Zealand government bond yields higher, causing prices to fall. The trimmed inflation forecasts temper the selloff but the hawkish policy outlook dominates, lifting two-year yields by 5bps.
Shorter-dated bonds sold off, pushing two-year yields up 5bps, as the market eyes imminent RBNZ rate hikes despite the lower inflation print.
If the RBNZ follows through with two hikes, yields could peak near 4.9% on the two-year, but a pause would spark a sharp reversal lower.
New Zealand economists lowered 2026 inflation forecast to 2.1% from 2.4%, but still back two more RBNZ rate hikes, citing sticky services inflation. The kiwi edged up to 0.6150 USD, while short-end bonds sold off. Markets price a 70% chance of a hike next month, with fiscal stimulus adding to policy urgency.
They see sticky services inflation and wage growth as persistent, requiring further tightening to bring inflation sustainably back to the 2% target midpoint.
The RBNZ is likely to deliver two more 25bps hikes this year, bringing the OCR to 5.75%, though the trimmed inflation outlook could soften the tone in future statements.
The NZD firmed modestly, and bond yields rose, reflecting expectations that near-term rate hikes are still on the table.