NZD plunges as Russia attacks Ukraine

The New Zealand dollar has plummeted 1.58% on the day, courtesy of the Russian invasion of Ukraine. In the North American session, NZD/USD is trading at 0.6661.

US dollar surges as risk appetite evaporates

The financial markets are seeing red today, but it’s looking all green for the US dollar, which is broadly higher against the major currencies. Panicky investors have headed for the hills and snapped up the safe-haven US dollar after Russia invaded Ukraine on several fronts. Russian forces are close to the capital Kyiv and there are fears that the city could fall in a few days.

There’s an old adage of buying US dollars in a war, and even the safe-haven Swiss franc and Japanese yen have fallen today against the greenback. The minor currencies have taken it on the chin, none more so than the New Zealand dollar, which earlier in the day was down close to 2%.

Earlier in the week, the RBNZ raised rates by 0.25% for a third time, bringing the cash rate to 1.00%. With inflation continuing to rise, the central bank has become more hawkish and is now forecasting that the cash rate will rise to 3.25% in 2024. This is in sharp contrast to its November statement when the RBNZ predicted a peak of 2.50%.

The central bank has a nice, neat plan to normalize policy by embarking on a rate cycle and reducing the balance sheet, but has Vladimir Putin thrown a monkey wrench into those plans? A war in the heart of Europe could have a massive impact on energy prices, as Russia is a major oil producer. A surge in oil prices will raise the prospect of stagflation, but if the New Zealand economy takes a downturn, it will be difficult for the RBNZ to continue hiking interest rates.

.

NZD/USD Technical

• NZD/USD is testing resistance at 0.6752 and closing in on resistance at 0.6810. Above, there is resistance at 0.6889
• 0.6615 is providing support, followed by 0.6536

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.