RBNZ Raises Rates

It’s been a strange start for the New Zealand Dollar today. Despite the RBNZ announcing its first-rate hike in seven years overnight, the antipodean currency has come under heavy selling pressure across the board today. The rate hike, which had been expected at the August meeting but was delayed due to the impact of fresh lockdowns, sees rates in New Zealand back up to 0.50% from the prior, record lows of 0.25%. With the rate hike priced in for August and then delayed, the market reaction is likely a case of “buy the rumour, sell the news”.

Further Tightening Coming

Looking ahead, the bank signalled that further removal of monetary easing is likely. The meeting statement highlighted that “further removal of monetary policy stimulus is expected over time, with future moves contingent on the medium-term outlook for inflation and employment." In terms of the bank’s view on the global backdrop, the RBNZ noted that “The level of global economic activity has continued to recover, supported by accommodative monetary and fiscal settings, and rising vaccination rates enabling a relaxation of mobility restrictions.”

Impact of Recent Lockdowns

The bank noted the economy had been performing well heading into the most recent lockdowns and while activity will certainly have contracted over the most recent quarter, the RBNZ expects a strong bounce back. There were some words of caution, however. The RBNZ noted that: “the latest COVID-19 restrictions have badly affected some businesses in Auckland and a range of service industries more broadly. There will be longer-term implications for economic activity both domestically and internationally from the pandemic.”

CPI Outlook

Regarding inflation then, the RBNZ projects that: “Headline CPI inflation is expected to increase above 4 percent in the near term before returning towards the 2 percent midpoint over the medium term.” The bank explained that “The near-term rise in inflation is accentuated by higher oil prices, rising transport costs and the impact of supply shortfalls.”

Technical Views


The sell off in NZDUSD today is seeing the market once again testing below the rising trend line from 2020 lows as the decline from .7171 deepens. With both MADC and RSI showing bearish signals here, there is room for the move to develop further with .6791 the next level to note. Beyond there the bear channel low and the .6512 level.