New Zealand dollar extends gains

The New Zealand dollar has started the week in positive territory and pushed above the 0.67 level. In the North American session, NZD/USD is trading at 0.6720, up 0.36% on the day.

RBZN moving to normalization

The RBNZ has embarked on a series of rate hikes aimed at normalizing policy and an increase in inflation expectations has added pressure on the central bank to tighten more aggressively in order to lower inflation to the bank’s target of 1%-3%. Inflation has been rising, primarily due to higher energy costs and there is the danger of a wage-price spiral as wages have not kept up with inflation. The central bank is widely expected to hike rates at the Wednesday meeting. Recent hikes have been in increments of 25 basis points, but with no signs that surging inflation will ease anytime soon, policymakers may feel that a sizeable half-point rise in rates is warranted.

The crisis in Ukraine has taken the financial markets on a roller-coaster ride. There have been further skirmishes in eastern Ukraine between the Ukraine army and the pro-Russian separatists, with fears that Russia is deliberately creating these flare-ups in order to justify an invasion of Ukraine. Kyiv is bracing for an attack, but there have been some diplomatic moves in the meantime, notably a possible summit between Presidents Biden and  Putin this week. Biden expressed his willingness in principle to meet Putin on condition that the Russians don’t invade. We can expect a ping-pong reaction from the markets in the coming days, with the market moving to a large extent on developments in Ukraine. There is clearly a feeling of dread in the air, but at the same time, there is a ray of hope as the diplomatic door remains open, even if only a bit.

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NZD/USD Technical

• There is resistance at 0.6752 and 0.6810
• 0.6615 is providing support, followed by 0.6536

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