The New Zealand dollar is steady on Wednesday, after sustaining massive losses a day earlier. NZD/USD is currently trading at 0.6906, down 0.20% on the day.
RBNZ balks at rate cut, for now
The RBNZ had signalled that it would hike interest rates at its policy meeting on Tuesday, but an outbreak of Covid in New Zealand triggered a country-wide lockdown. This caused the central bank to backtrack on its hike, which would have marked the first such increase by a major central bank since the Covid pandemic hit in 2020. The policy decision sent the New Zealand dollar 1.44% lower on Tuesday. The currency dipped further on Wednesday, falling to its lowest level since November.
The kiwi’s dive was pronounced but short-lived, as the RBNZ statement and the OCR projections were hawkish. The Covid breakout and lockdown disrupted the RBNZ’s carefully laid-out plans, but this should prove to be no more than a short delay, as the Bank will raise rates once the Covid situation clears up. This means that we are likely see at least one rate hike before the end of the year.
The OCR projections indicate a tightening cycle through the end of 2022, which will bring rates to rise above 2.0%. With the current rate at just 0.25%, this is an aggressive tightening schedule that should provide support to the New Zealand dollar.
After the drama from the RBNZ, attention will now shift to the Federal Reserve, which releases the FOMC minutes
later in the day. Investors will be looking for signs that a majority of members are on board for a taper sooner rather than later. If this is the case, the US dollar should be able to extend this week’s rally. On Tuesday, Minneapolis Federal Reserve President Neel Kashkari, who is a dove, said that it was reasonable to expect tapering around the end of the year.
- There is resistance at 0.6985. This is followed closely by a 21-day moving average at 0.6994. Above, we find resistance at 0.7078
- On the downside, 0.6892 is fluid. Next is 0.6763, a monthly support line.
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