Goldman Sachs: Watch The RBNZ's Forward Guidance

Goldman Sachs note that their "economists and consensus expect a 25bp hike at the upcoming RBNZ meeting, broadly consistent with market expectations. A key driver of NZD strength in recent months has been the relatively rapid shift from roughly zero hikes priced to 75bp priced in by year-end. Although market pricing sets a high bar for a hawkish policy surprise this week, we think the RBNZ will ultimately hike more next year than currently discounted. As a result, the policy guidance and updated projections will be particularly relevant for medium-term NZD views. We think the RBNZ likely feels comfortable with a fast pace of tightening, given i) the currency has been fairly range-bound on a trade-weighted basis and ii) its macro model implies a relatively limited drag of a REER appreciation on growth: 0.1% over the subsequent year in response to a 1% shock. Together with our RBA outlook, where our policy rate forecasts are more dovish than the path currently priced, we continue to see scope for further AUD/NZD downside from current levels."