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New Zealand Dollar Forecast: NZD/USD Eyes Resistance After RBNZ Rate Hike

New Zealand Dollar, Reserve Bank of New Zealand, Rate Hike, Inflation – Talking Points

  • The Reserve Bank of New Zealand hikes its OCR by 25 basis points
  • New Zealand Dollar at risk given lofty rate hike bets despite threats
  • Persistent inflation threat on the radar for RBNZ policymakers

The Reserve Bank of New Zealand (RBNZ) kicked off a tightening cycle Wednesday after raising its official cash rate (OCR) by 25 basis points. That brings the OCR from 0.25% to 0.50% and marks only the second rate hike from a G10 central bank since the Covid pandemic began. The first was Norges Bank. The New Zealand Dollar ticked higher versus the US Dollar immediately following the news but subsequently trimmed those gains and is on the move lower.

Today’s rate hike was in line with analysts’ expectations, according to a Bloomberg survey. However, the market is pricing in a rather hawkish path for the RBNZ over the next year. That opens the door for Kiwi Dollar weakness should the central bank disappoint relative to forward market expectations. That said, AUD/NZD may be a prime candidate to move higher should those expectations disappoint, given the RBA’s relatively dovish stance versus the RBNZ.

The New Zealand economy has performed well enough to warrant a rate hike in board members’ eyes, although policymakers appear to remain in an optimistically cautious posture. An ongoing lockdown in Auckland overshadows broader gains made toward employment. Meanwhile, inflation is well above target – a common theme across major economies currently.

In fact, the RBNZ policy statement puts the inflation threat as one of the primary themes regarding the central bank’s path forward. That statement notes future moves will be dependent on medium-term consumer inflation measures in addition to labor market strength. The RBNZ sees near-term CPI rising above 4%. Altogether, the forward course on inflation and Covid restrictions – and how it impacts the labor market – is key to the RBNZ’s next move. CPI, labor, and domestic covid data points will likely provide the most relevant information to judge the RBNZ’s next move.

New Zealand Dollar Technical Forecast

The New Zealand Dollar appears to be running out of steam versus the US Dollar after the currency pair climbed from its September low. The 26-period Exponential Moving Average (EMA) appears to be capping upside, along with a congestion area from August. If prices fail to break above these levels, a downside move may take place in the coming days.

NZD/USD 8-Hour Chart

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— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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