NZD Strengthens on Improving Domestic Data, RBNZ Hikes Expected
The New Zealand Dollar (NZD) has strengthened against major currencies due to improving domestic data, according to Brown Brothers Harriman's (BBH) Elias Haddad. The ANZ July business outlook survey revealed a significant increase in business confidence and activity outlook, indicating an ongoing recovery in real GDP growth.
The survey showed that business confidence rose 19.5 points in July to a five-month high of 56.1, while the activity outlook increased by 12.4 points to a five-month high of 49.3. These results suggest that above-target inflation and a more favorable domestic growth outlook support expectations for further Reserve Bank of New Zealand (RBNZ) rate hikes.
The swaps curve currently prices in 60bps hikes by year-end and a total of 100bps of tightening over the next twelve months to 3.50%, near the top of the RBNZ estimated neutral range (2.20%-4.10%). This implies that additional RBNZ rate hikes are likely, which is supportive for the NZD.