New Zealand’s relative success in combating the coronavirus pandemic has propelled a swift economic recovery. Thus, the Reserve Bank of New Zealand (RBNZ) is expected to keep steady at 0.25% in February. 

NZD/USD has extended its gains, closing above the January high at 0.7315 on Monday, only to mildly consolidate heading into the RBNZ decision. Hints towards a rate hike could spark a correction in the kiwi, according to FXStreet’s Dhwani Mehta.

See – Reserve Bank of New Zealand Preview: Forecast from eight major banks

Key quotes

“The RBNZ is seen maintaining the Official Cash Rate (OCR) at a record low of 0.25% for the sixth straight month in February. The kiwi central bank could play down tightening expectations for this year, although could turn out to be less-than-expected amid improving economic outlook, as reflected by the improvement in key macro indicators.”

“The Kiwi central bank could revise up its growth, employment and inflation forecast to paint an upbeat economic outlook, although closed borders overseas continue to threaten its tourism industry.”

“The RBNZ could call for extending its Large-Scale Asset Purchase (LSAP) program, which is currently maintained at NZ$100 billion.”

“Optimism on the economic outlook could prompt the RBNZ to stand pat on the interest rates but any signals towards a potential rate hike next year could be seen as a move towards a less dovish/ hawkish stance. Subsequently, the kiwi dollar’s rally against the US dollar could be put at risk.”

“NZD/USD could see a sharp corrective decline towards 0.7250 on a hawkish shift. Meanwhile, the kiwi could maintain its uptrend near 34-month highs above 0.7300 if Orr and Co. endorse a wait-and-see approach for the foreseeable future, allowing the fiscal policy to stimulate the economic recovery.”