New Zealand’s Central Bank Hikes Rates Again, NZD/USD Reacts Higher

  • NZDUSD
    (${instrument.percentChange}%)

RBNZ Decision

The Reserve Bank of New Zealand (RBNZ) increased rates to 1% today, delivering its third 25 basis points hike in a row, having considered a larger 50 bps rise [1].

It also upgraded its projections for the official cash rate to 2.2% by the end of the year, from 2.1% in the previous forecasts. By the end of the next year, it sees OCR at 3.3%, from 2.6 previously. [2]

The central bank had concluded its asset purchase program (LSAP) last year and announced today that it will sell bonds at a rate of NZ$5 billion/fiscal year, starting in July.

The RBNZ sees annual CPI Inflation peaking at 6.6% in March, expecting it to return towards the 2 percent midpoint over coming years.

Ukraine News

Western countries condemned Monday's recognition of separatist territories in Ukraine by Russia and the authorization of military deployment. Yesterday they announced sanctions against Russia, while Ukrainian President Zelensky believes that a broad escalation on the part of Russia will not happen.[3]

The situation however remains tense and US Secretary of State Blinken, called off Thursday's meeting with his Russian counterpart. [4]

NZD/USD Reaction

The Kiwi reacted higher to the RBNZ's hawkish decision, while aggressive pricing for the Fed's rate hike path have moderated recently. The pair runs its fourth straight profitable week and eyes 0.6800-05, although January 2022 highs are distant at this point (0.6891)

On the other hand, the move looks a bit overextended and the lower border of daily Ichimoku Cloud (at around 0.6800) may contain upward aspirations. This can cause pressure and a test of the EMA100 (0.6710-00), but renewed risk-aversion will be needed for a bigger decline towards the ascending trend-line for this year's lows (at around 0.6640).

The pair is sensitive to risk-flows and the news around Ukraine, requiring caution, while form the economic calendar we mostly expect New Zealand Retail Sales tomorrow night (GMT) and PCE Inflation form the US on Friday.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 23 Feb 2022 https://www.rbnz.govt.nz/news/2022/02/more-tightening-needed

2

Retrieved 23 Feb 2022 https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Monetarypolicystatements/2022/mpsfeb22.pdf

3

Retrieved 23 Feb 2022 https://www.president.gov.ua/en/news/ukrayina-rozglyane-pitannya-rozrivu-diplomatichnih-vidnosin-73057

4

Retrieved 17 May 2022 https://twitter.com/StateDept/status/1496341547494920199

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