The New Zealand Dollar has broken out to its highest levels since April 2018 this week. Benefitting from the broad recovery in risk appetite over recent months, NZD was boosted further this week by a further unchanged decision from the Reserve Bank of New Zealand. While the bank’s message was less hawkish than many had been expecting, bulls have not been deterred it seems.
RBNZ Focused on Inflation & Employment
The RBNZ kept rates unchanged at its February monetary policy meeting held overnight. The uptick in NZ yields recently had created some expectation that the bank might look to start scaling out of its current easing, or at least signal such intentions. However, RBNZ governor Orr reaffirmed the bank’s message that it will not be raising monetary policy from current levels until 2% inflation was sustained and employment had been maximised.
Wait & See Mode
In terms of a timeline, Orr downplayed tightening expectations saying that these conditions would not just “magically arrive” and would take some time to materialise. Orr went on to say: “It’s going to take some time to get that confidence. We are going to have to see these outcomes and understand the drivers.”
RBNZ Committed To Further Easing If Necessary
Looking ahead, Orr was keen to also stress that downside risks remain. While much of the focus has been on the potential for the RBNZ to move out of its current easing Orr turned the conversation back to the uncertainty which still remains and reaffirmed the bank’s commitment to helping the economy, saying: “If we thought monetary conditions became inconsistent with what we need, we are prepared to move...the OCR can go lower.”
Upgraded Economic Forecasts
Despite the caveat that the bank remains committed to easing, the bank’s updated economic forecasts painted a more optimistic picture, suggesting there is less likelihood of further easing being necessary if the economic recovery continues as projected. As such, it seems that traders are interpreting Orr’s comments at this meeting as merely a play against the current NZD strength. With the global vaccination effort well underway and most developed economies projecting a return to normal over the year, NZD looks geared towards further strength in the near-medium term.
The rally in NZDUSD has seen price breakout above the .7309 highs. Price is now challenging the .7395 resistance ahead of the 2018 highs at the .7438 level. While price remains above the rising trend line from Q3 2020 lows, the near-term bias remains bullish. Below there, the big support to watch is at the .7102 level.
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