RBNZ Survey Could Shake Up Market's Aggressive Tightening Bets
The Reserve Bank of New Zealand (RBNZ) Survey of Expectations is set to be released, and it could shake up the market's expectations for further tightening by the RBNZ. The survey has historically had a significant impact on interest rates, and two-year inflation expectations are the key metric to watch.
The markets have already priced in several rate hikes, with an 88% probability of a hike at the September meeting and around 3.7 further hikes by June next year. However, a decline in inflation expectations could force traders to rethink this aggressive tightening path and weigh on the Kiwi currency.
The RBNZ's reaction function has been more sensitive to falls in inflation expectations than rises, with a significant drop in two-year expectations often resulting in a hike at the next meeting. If the survey shows a decline in inflation expectations, it could lead to a re-evaluation of the market's expectations for further rate hikes.