NZD rebounding (for now) after the RBNZ hike
- RBNZ hikes by 50bps, more to come: The Reserve Bank of New Zealand has hiked by 50 basis points to 4.75% and suggests that rates will continue towards 5.50%
- NZD is rebounding, for now: The NZD has been a significant underperformer on major forex in recent weeks. A near-term bounce may only be short-lived.
- Elsewhere sentiment is turning sour again: European indices are lower as they play catch up on a lower close on Wall Street. US futures have also turned lower after having found support overnight.
- Precious metals tailing off with oil also lower: In Commodities there is also a picture of deterioration forming, with a gold rebound tailing off, silver now falling and oil solidly lower.
New Zealand's central bank hikes rates by 50bps to tackle inflation
The Official Cash Rate of the Reserve Bank of New Zealand has been raised by +0.50% to 4.75%. This is a 14-year high.
However, the rate hikes are not done yet. The RBNZ expects to keep tightening further as inflation is too high. The RBNZ expects the OCR to peak at 5.50% (another +0.75% from current levels) in 2023.
The RBNZ statement said:
“While there are early signs of price pressure easing, core consumer price inflation remains too high…”
Inflation remains stubbornly high. This seems to be a consistent theme with other major central banks facing similar pressures.
The NZD rebounds, for now
Although the rate hike was broadly in line with analyst expectations the insistence of more hikes to come is helping the NZD to strengthen this morning.
However, this move is likely to be short-lived. The NZD has been one of the weakest performers of major currencies, especially since the USD strength resumed in early February.
Periods of higher US Treasury yields and a stronger USD have been driving negative risk appetite over recent months. This underperformance will likely continue once the dust has settled on this RBNZ decision.
The continuation of a hawkish bias by major central banks
In recent weeks, the stronger US economic data, coupled with sticky inflation has been driving yields higher.
Traders are waking up to the realisation that central banks such as the Federal Reserve, the Reserve Bank of Australia (the hawkish bias of the meeting minutes) and the Reserve Bank of New Zealand, will need to have tighter monetary policy than previously thought to tackle inflation.
This is driving risk negative moves through major forex and commodities. It is yet to decisively impact equity markets, but yesterday’s sharp drop on Wall Street will serve as a key warning for the bulls.
NZD/USD hanging on to key support
As for the technical analysis, there is a basis of support that has formed on NZD this morning, but the Kiwi is a currency on the brink of a significant break lower against the USD.
NZD/USD
The crucial support of the January low at 0.6190 is intact, however, the recent corrective momentum leaves this support under growing pressure.
Daily candlesticks have shown a run of lower highs and lower lows forming in recent weeks.
- There is a “death cross” on the 21 and 55-day moving averages
- The daily RSI is falling to 35, at four-month lows.
These are bearish signals.
Reaction to the support band between 0.6155/0.6190 will be crucial in the coming days. Momentum is calling for a breakdown and if this is confirmed by the price closing below the support, it would form a big top pattern.
Resistance is mounting at 0.6260/0.6270. The NZD bulls need to pull the price above this resistance to start to engage in a recovery again.
Support and resistance levels for Gold, DAX Index, and more
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