NZD Higher Following RBNZ

The New Zealand Dollar continues to trade higher today following a firmly hawkish meeting from the RBNZ overnight. On the back of a recent 4% recovery rally against USD, NZD saw around a further 1% gain overnight as the RBNZ hiked rates for a second consecutive meeting and upgraded its rates forecasts for 2022 and 20223.

Rate Projections Lifted

While the .5% hike from the RBNZ was widely anticipated it was the upward revision to the bank’s rate projections that caused the most upward movement in NZD. The RBNZ now projects rates to end the year around 3.25% - 3.5%, up by a full percent from the prior projections of 2.25% - 2.5%. Looking further out, the OCR is expected to peak around 4% by end of 2023.

Commenting on the rate hike and new rates projections, the RBNZ noted: “It remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment. The Committee is resolute in its commitment to ensure consumer price inflation returns to within the 1-3% target.”

Inflationary Pressures

Explaining the reasoning behind this new hawkishness, the RBNZ said: “The level of global economic activity is generating rising inflation pressures, exacerbated by ongoing supply disruptions driven by both Covid-19 persistence and the Russian invasion of Ukraine. The latter continues to cause very high prices for food and energy commodities.”

Further Hikes Coming

Looking ahead, the RBNZ noted: “The Committee agreed to continue to lift the OCR at pace to a level that will confidently bring consumer price inflation to within the target range. Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level.”

NZD to Remain Supported

In light of this latest hike and the upgraded forecasts, the RBNZ is now among the most hawkish of the G10 central banks. The reaction in currency markets has seen NZD sharply higher across the board. With further .5% hikes now being priced into the near-term outlook, NZD looks set to remain bullish as we head into the summer

Technical Views

NZDUSD

The breakout in NZDUSD above the bear channel from YTD highs has seen the market moving above the .6398 level also. With both MACD and RSI turned bullish here, the focus is on a continuation higher while .6398 holds. Near-term, .6541 is the level for bulls to crack, opening the way for a test of .6720 above.