RBNZ Hike Priced-In, NZD Upside Limited

New Zealand's retail sales volumes unexpectedly fell in Q2, driven by a slump in fuel and motor-related categories. According to Brown Brothers Harriman (BBH), core sales still rose, indicating resilient domestic demand.

The Reserve Bank of New Zealand (RBNZ) is set to make its next policy decision on September 2, which includes a fresh Monetary Policy Statement. A 25bps back-to-back hike to 2.75% is virtually fully priced-in by the market.

Over the next twelve months, the swaps curve implies 75bps of tightening to 3.25%, driven by above-target inflation and a policy rate near the lower-end of the RBNZ's neutral range (2.20%-4.10%).