NZD jumps higher after RBNZ hikes by 50bps
- The RBNZ has hiked to 5.25%: This was higher than the 25bps hike that analysts had expected
- NZD is outperforming: The NZD is the leading currency in major forex today, whilst the AUD is a notable laggard
- Elsewhere equities are tentatively positive: European indices are a shade higher, with US futures all but flat.
- Gold is holding above $2000: In commodities, gold is still positive above $2000 but silver has dropped back slightly.
RBNZ hikes again, more than expected
The Reserve Bank of New Zealand has hiked the Official Cash Rate by 50 basis points to 5.25%.
It is the eleventh hike in a row by the RBNZ and means that this is the highest the rate has been since 2008.
The move has come as a shock to markets.
With the Reserve Bank of Australia choosing to keep rates steady yesterday and with 22 out of 24 analysts polled by Reuters expecting a 25bps hike, this move is a bold one.
Although the RBNZ had guided for another 50bps in its previous February decision, in light of recent pressures in the banking system, analysts had believed that it would opt for a slightly easier hike.
With inflation running at 7.2% in Q4 2022, trends in the first few months of 2023 have not helped to bring prices down.
It seems that it is quite the opposite:
“severe weather events in the North Island have led to higher prices for some goods and services. This higher near-term CPI inflation increases the risk that inflation expectations persist above our target range.”
So, the fight against inflation continues.
Here is a segment from the RBNZ statement today:
Markets still pricing for higher RBNZ rates, and NZD is stronger
The move to 5.25% may not be the last either.
Swaps rates are pointing to a peak in the official cash rate of 5.50%, which would be another 25bps hike probably in the next meeting in May.
The prospect of higher rates leaves the NZD well positioned for near-term upside.
We can see this in the performance today, where the increase in NZD is notable.
Also notable is the underperformance of the AUD.
The Australian dollar is the only major currency that has performed worse than the USD in the past month.
There has been a notable pick up in the NZD in recent days, with the move accelerating higher today.
On the chart, this move has pushed decisively through the resistance at 0.6275/0.6295 which opens near-term upside.
The market has been in a medium-term trading range since November, moving between the support around 0.6065/0.6085 and the long-term pivot resistance band 0.6515/0.6535.
- The move above 0.6295 continues a near-term recovery trend.
- It is also backed up by strong momentum with the daily RSI moving into the 60s.
- This is a change in the near-term outlook, with the breakout at 0.6275/0.6295 now becoming a basis of support for any pullbacks.
A move above minor resistance at 0.6390 would open the medium-term range highs again.
The strength of the NZD and the weakness of the AUD has brought a notable breakdown in AUD/NZD.
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