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Rate hikes by year-endRBNZ: 75 bps (79% probability of rate hike at the next meeting)ECB: 52 bps (89% probability of rate hike at the next meeting)BoJ: 42 bps (71% probability of rate hike at the next meeting)BoE: 32 bps (94% probability of no change at the next meeting)BoC: 28 bps (99% probability of no change at the next meeting)RBA: 18 bps (93% probability of no change at the next meeting)Fed: 13 bps (99% probability of no change at the next meeting)SNB: 11 bps (97% probability of no change at the next meeting)The main theme of this week has been US-Iran deal optimism as several reports since the weekend have been pointing to an imminent breakthrough. That breakthrough hasn’t come yet, but it still led to a sizeable drop in oil prices and a dovish repricing in interest rate expectations for most central banks.The biggest changes were seen in the RBA and RBNZ pricings. For the RBA, the market continues to scale back rate hike expectations, with traders not seeing any more rate hikes coming this year. This is due to meaningful softening in Australia’s economic data recently, with the unemployment rate jumping to the highest level since 2021 and monthly headline inflation slowing way below RBA’s forecasts. For the RBNZ, the central bank held its Official Cash Rate steady at 2.25% but delivered a hawkish surprise. The central bank revealed that its decision was split 3-3, forcing a casting vote, and explicitly warned that interest rates will likely need to be increased sooner and more aggressively than previously forecasted. Traders rushed to price in a rate hike coming already at the next meeting in July with probabilities now standing at 79%. This divergence between RBA and RBNZ has also led to the largest single-day decline in the AUD/NZD pair since 2022.Notably, the market is still pricing in a 71% chance of a BoJ rate hike in June, which is way out of touch with the reality. BoJ Governor Ueda made it pretty clear that they will wait for the second half of 2026, and they will want to see the US-Iran conflict to end before delivering a rate hike that could just unnecessarily weigh on economic activity. The Japanese inflation data hasn’t been calling for urgent rate hikes at all.
This article was written by Giuseppe Dellamotta at investinglive.com.
đĄ DMK Insight
Central banks are gearing up for rate hikes, and here’s why that matters for traders: The RBNZ, ECB, and BoJ are all signaling potential increases, with the RBNZ showing a 79% probability of a 75 bps hike at their next meeting. This tightening cycle could lead to stronger currencies against the USD, particularly if the Fed remains on hold. Traders should watch how these rate expectations influence forex pairs like NZD/USD and EUR/USD, as they could experience volatility around the announcements. The BoE’s low probability of change, however, suggests a divergence that could weaken the GBP against stronger currencies. Look for key resistance levels in these pairsâif NZD/USD breaks above recent highs, it could signal a bullish trend. Conversely, if the Fed surprises with a hike, it might strengthen the dollar, impacting all these currencies negatively. Keep an eye on economic indicators leading up to these meetings, as they can shift market sentiment quickly. The immediate focus should be on the next RBNZ and ECB meetings, as they could set the tone for the rest of the year.
đŽ Takeaway
Watch for the RBNZ and ECB meetings; a rate hike could strengthen NZD and EUR against the USD, impacting forex trading strategies.
