ING’s Francesco Pesole expects New Zealand’s 3Q CPI to slow to 3.8%, broadly matching consensus and slightly under the RBNZ’s projection, with any upside surprise reinforcing expectations of an October rate hike. Markets already price a meaningful move after hawkish RBNZ commentary, while NZD is seen cheap versus fair value and NZD/USD is projected above 0.570 into year-end.

Inflation key for RBNZ decision

“New Zealand releases important 3Q CPI figures overnight. We expect the headline to slow from 4.1% to 3.8%, in line with consensus and marginally below the RBNZ’s 3.9% projection. Any, even small, upside surprise will, in our view, consolidate expectations of an October hike further.”

“Markets have been pricing around 18-21bp for next week’s meeting since RBNZ’s Chief Economist Paul Conway delivered hawkish remarks last week. He explicitly said this month’s decision is wide open, that he sees risk to the upside for 4Q CPI and that the NZD weakness is worrying.”

“It felt like an attempt to drive market pricing higher, and barring a major surprise lower in CPI tomorrow, we expect a 25bp hike next week.”

“NZD remains cheap relative to its short-term fair value model, and we expect it to keep recovering ground against its closest peer, AUD. We see NZD/USD trading above 0.570 into year-end.”