RBNZ come out swinging with their most aggressive hike in 22 years

In true RBNZ style, the central bank came out swinging with a punchy 50 bps hike to tame inflation (and inflation expectations).

Charts (5)

Summary of today’s RBNZ statement:

  • Increased the Official Cash Rate (OCR) to 1.50 percent
  • Appropriate to continue to tighten monetary conditions
  • High level of geopolitical tension and related economic sanctions on Russia
  • Underlying strength remains in the economy in New Zealand
  • RBNZ to remain focused on ensuring high inflation does not become embedded into longer-term inflation expectations
20220413rbnzhike2

Heading into today’s meeting it was widely debated as to whether the RBNZ would hike by 25 or 50 bps points, given they had themselves described the choice as “finely balanced”. Well, today they hike by 50 bps for the first time in 22 years (to the month) which is in itself a signal that inflation is indeed getting too hot handle, despite concerns from geopolitical tensions and the latest round of COVID-19.

Today’s hike is to soothe fears of higher for longer inflation, as it was aimed at lowering inflation expectations. And by keeping the door open for more hikes and as soon as their next meeting, this meeting was about as hawkish as it could have been without just going for a 75-bps hike today.

Read our guide on Forex interest rate trading

NZD trades broadly higher following RBNZ meeting

The fact that NZD prices rallied after the meeting tells us that the 50-bps hike was not priced in. And as it was coupled with a hawkish statement then it potentially leaves room for further gains in later sessions.

NZD traded broadly higher against its peers with NZD/JPY leading the way, as the Kiwi took full advantage of an uber-dovish BOJ. NZD/USD is holding above trend support on the daily chart having printed a bullish outside candle yesterday. Whilst this hints at a swing low around 0.6800, the pair is now trapped between the 50 and 200-day eMA’s. Furthermore, it has handed back around a third of today’s gains and its high has met resistance at 0.6900 and near the 200-day eMA.

20220413nzdusdFX

Whilst NZ now has a 100-bps yield differential over the Fed, that is likely to be reduced back to 50 bps at next month’s FOMC meeting. And as NZD/USD has handed back most of today’s gains already it appears markets are placing a greater emphasis on reduced differential in future. Either way, we need to see either daily close above 0.69 or below 0.68 before we become confident its next directional move is underway.

A close above 0.6900 brings 0.7000 into focus for bulls, whilst a daily close beneath 0.6800 invalidates trend support and strong suggests a lower high has been seen.

 

 

How to trade with FOREX.com

Follow these easy steps to start trading with FOREX.com today:

  1. Open a Forex.com account, or log in if you’re already a customer.
  2. Search for the pair you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account