NZD/USD Drops on Less Hawkish Tone from RBNZ
NZD/USD Analysis
The Reserve Bank of New Zealand kept interest rates at 5.5% for eight straight time, but adopted a softer tone compared to the hawkish messaging of the previous meeting. Back then, officials had discussed the case for a hike, but no such thing was mentioned today. Furthermore, they may have repeated that policy needs to remain restrictive, but now added that the extent of this restraint "will be tempered over time". [1]
The economy exited its brief recession in Q1 but remains weak. Employment conditions are easing and although pay growth remained higher than inflation, it moderated, lowering the risk of wage-price spiral. Inflation has shown some persistence but dropped to 4% in Q1 and officials expected it to fall within the 1%-3% target in the second half of the year.
Today's dovish shift in rhetoric strengthens chances for rate cuts within the year by the RBNZ and NZD/USD reacted lower. This creates scope for a breach of the pivotal technical confluence at around 0.6040, where the 50% Fibonacci of the last leg up, the ascending trend line of the 2024 low and the lower border of the daily Ichimoku Cloud converge. Daily closes below it would expose the pair to 0.5952.
However, sustained weakness is not justified by the monetary policy dynamics. The Fed has adopted a higher for longer narrative, but still sees one cut this year, whereas markets are more aggressive pricing in two moves. Price pressures have been stubborn, but disinflation appears to have resumed, the labor market is back "on balance" according to Chair Powell [2] and the economy is cooling, helping the case for less restrictive stance ahead.
As result, NZD/USD has the ability to bounce from the aforementioned pivotal support cluster and push towards 0.6223, but we are cautious for bigger recovery.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
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