RBNZ hikes, but NZD takes a plunge

We continue to see sharp volatility from the New Zealand dollar. NZD/USD enjoyed a three-day rally, but has squandered most of these gains on Wednesday. The pair is currently trading at 0.6885, down 1.10% on the day.

RBNZ hikes rates

The markets were expecting a rate hike from the Reserve Bank of New Zealand, and this time the central bank didn’t disappoint, raising rates from 0.25% to 0.50%. The RBNZ was poised to press the rate trigger in August, but an outbreak of the Delta variant led to a national lockdown, and policy makers felt that the timing for a rate hike was not optimal. Fast forward to October, when the government has abandoned its zero-tolerance policy on Covid and will rely on a vaccination program to keep Covid at bay. This has made the optics of a rate hike more palatable. The economic conditions clearly justify a rate hike – inflation is above the RBNZ target of 1-3% and the employment market is robust.

Despite the rate raise, which was the first since 2014, the kiwi not only didn’t get a lift but has plunged over a full cent. This can be attributed to growing concerns over the US debt ceiling, Evergrande and a possible energy crisis. The rate hike was well-telegraphed by the RBNZ and as far as the markets are concerned, this was a non-event.

It’s important to keep in mind that the rate hike is not a one-shot deal; the RBNZ plans a series of hikes into 2022, with another rise on the way perhaps in November. Only a handful of central banks have started to raise interest rates, and with the Fed focusing on tapering rather than a rate move, the New Zealand dollar should receive a lift as the RBNZ embarks on a cycle of rate hikes.

.

NZD/USD Technical

• There is resistance at 0.7028, followed by 0.7117
• 0.6855 has weakened in support as NZD/USD has fallen sharply. Below, there is support at 0.6771

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.