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AUD/NZD moves toward double-top neckline as RBNZ tightening bets jump
RBNZ Chief Economist Paul Conway warned that a renewed inflation shock could require stronger policy, lifting forecasts for New Zealand’s Official Cash Rate to about 3.0% by December.
Action Forex reports that AUD/NZD is testing the neckline area of a technical double-top pattern as markets recalibrate after remarks from Reserve Bank of New Zealand Chief Economist Paul Conway revived expectations of faster tightening.
Conway, speaking on “Finding Signal in the Inflation Noise,” said the earlier easing from lower oil prices is not guaranteed to persist, pointing instead to a resurgence in Middle East tensions that he described as another significant inflation shock. He also highlighted central bank research suggesting businesses are passing higher costs through to consumers more readily than in the past, and are less willing to reverse those increases when costs fall.
The report says Conway warned that inflation may not slow as quickly as the RBNZ’s forecasts imply, and that monetary policy may need to respond more firmly to re-anchor inflation expectations. He cautioned that well-anchored expectations cannot be taken for granted, helping shift market pricing toward additional rate increases.
According to Action Forex, overnight index swaps now imply the Official Cash Rate rising from 2.50% to around 3.0% by December, with another increase expected early next year. The repricing comes as investors compare the already more advanced Australian hiking cycle to the view that the RBNZ has more ground to make up, supporting continued New Zealand dollar strength versus the Australian dollar.