On July 8, the Reserve Bank of New Zealand (RBNZ) will hold its next meeting, during which it is expected to raise the interest rate by 25 basis points. This Wednesday, the RBNZ will meet again, and a 25-basis-point rate hike is widely anticipated. This basic and most expected scenario is largely already priced in. Thus, all attention from traders on the NZD/USD pair will be focused on the RBNZ governor's rhetoric and the wording of the accompanying statement, which should clarify the central bank's future intentions. If the central bank suggests that the July hike will not be the last, the New Zealand dollar will receive solid support across the market, including against the greenback. However, the most likely scenario seems to be a "dovish hike," meaning the central bank will raise interest rates but not signal readiness for further monetary policy tightening, sticking to rather cautious rhetoric.

It is important to recall that at the previous meeting in May, the RBNZ adopted a wait-and-see approach, though the decision was not unanimous: some committee members were already calling for policy tightening. Nonetheless, the central bank emphasized the high level of uncertainty and the dependency of future actions on incoming macroeconomic data. This line is likely to be maintained.

However, while in May the split within the Committee was seen by the market as a signal of a high probability of an imminent rate hike (thus supporting the New Zealand dollar), a similar situation now may have the opposite effect. After the almost inevitable July hike, the key question will not be the fact of tightening but rather the central bank's willingness to continue this cycle. If the central bank does not announce the next rate hike, the market will interpret this as a "dovish" signal.

Several fundamental factors support the RBNZ's cautious rhetoric. One of the key arguments is the state of the New Zealand economy. After a prolonged period of stagnation, the country's economy only recently began to show signs of recovery. However, this recovery remains extremely unstable. For instance, the construction sector declined by 1.0% in the first quarter.

According to the IMF, economic growth has encountered a new negative factor – rising global uncertainty and a recent surge in energy prices. The Fund's economists believe that the recovery will be slower than previously anticipated, with economic activity likely to weaken again in the second quarter.

Considering these circumstances, the RBNZ is unlikely to want to aggressively pressure the economy with a series of consecutive rate hikes.

Another factor favoring caution is the gradual softening of the labor market. Although unemployment remains relatively low (by historical standards), employment growth rates are slowing, and wage pressures are gradually decreasing. Moreover, wage dynamics and secondary inflation effects are among the critical indicators for the RBNZ. If signs of cooling in the labor market persist, the necessity (and feasibility) of further rate hikes will significantly decrease.

The main reason for the July rate hike is inflation, which remains above the central bank's target level. However, there are notable "buts" in this regard. The annual consumer price index in the first quarter was reported at 3.1%, exceeding the RBNZ's target range of 1-3%. According to the central bank's forecasts, overall inflation is expected to accelerate to around 4.3% in the third quarter due to energy shocks, after which it should gradually decline and return to target levels only by 2027.

However, it is crucial to emphasize that a significant portion of the current inflationary pressure is due to external factors—primarily the rising cost of energy —rather than to overheating domestic demand. Consequently, the RBNZ could well emphasize that the current inflation spike is largely temporary, especially considering the de-escalation in the Middle East and the subsequent stabilization of the oil market. In other words, the central bank may imply that inflation risks are gradually easing, thereby making the need for further monetary policy tightening less evident.

Thus, in my opinion, the likelihood of a "dovish hike" is quite high, given the current fundamental background. Formally, the central bank will continue to fight inflation; however, the accompanying statement is likely to be framed in cautious terms. The Committee will likely avoid announcing the next rate hike, note the preventative nature of the July increase, highlight signs of cooling domestic demand, and emphasize that further decisions will depend entirely on the dynamics of inflation, wage pressures, and inflation expectations.

In other words, the market is unlikely to receive clear signals regarding a predetermined continuation of the tightening cycle. As a result, the July rate hike (already largely priced in) will not provide substantial support for the New Zealand dollar.

From a technical standpoint, the NZD/USD pair on the daily chart is situated between the middle and lower Bollinger Band lines, beneath the Kumo cloud and the Kijun-sen line, but above the Tenkan-sen line. It is advisable to consider short positions only after sellers of NZD/USD break through the Tenkan-sen line (0.5670) and consolidate below this support level. In this case, the Ichimoku indicator will form a bearish "Parade of Lines" signal, opening the way for bears to the next price barrier at 0.5600, which corresponds to the lower Bollinger Band on the D1 timeframe.