NZD higher despite RBNZ cautious tone

The New Zealand dollar has recorded strong gains in Wednesday trading. Currently, NZD/USD is trading at 0.7379, up 0.61% on the day.

RBNZ says prolonged QE needed

The New Zealand dollar continues to shine, as it beats up on the US dollar. NZD/USD has gained 1.2% so far this week, and is up an impressive 2.8% in February. The pair has again posted strong gains on Wednesday, as even a dovish RBNZ rate statement hasn’t curbed the current upswing.

The RBNZ’s message to the markets on Wednesday was crystal clear. The rate statement saying that monetary support would remain for some time. The bank said that “prolonged monetary stimulus” was needed and that inflation and employment targets would take time to be met. The RBNZ maintained interest rates at 0.25% and its QE programme (LCAP) at NZ100 billion. However, the bank noted that it was prepared to “provide additional monetary stimulus if necessary.”  New Zealand’s economy has rebounded well from a recession last year, as we’re seeing a V-shaped recovery. The labor market is robust and there are inflationary pressures, signs of a strong economy. Still, the RBNZ is trying to curb the enthusiasm over economic conditions, saying in the rate statement that the economic outlook remains uncertain due to the Covid pandemic.

In the US, Federal Chair Powell was also sending out a dovish message in testimony before a congressional committee. Powell poured cold water on any expectations that the Fed was planning to taper its QE scheme, saying that the Fed remained committed to an ultra-easy monetary policy. Powell sought to reassure the markets that the Fed would act carefully, slowly and that any moves would be telegraphed well in advance.

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NZD/USD Technical

• NZD/USD broke above resistance at 0.7355 in the Asian session. Close by, there is resistance at 0.7414, followed by resistance at 0.7512
• There is support at 0.7198. Below, we find support at 0.7100
• The 50-day moving average (MA) is situated at 0.7184

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