RBNZ hikes, but NZD takes a plunge

We continue to see sharp volatility from the New Zealand dollar. NZD/USD enjoyed a three-day rally, but has squandered most of these gains on Wednesday. The pair is currently trading at 0.6885, down 1.10% on the day.

RBNZ hikes rates

The markets were expecting a rate hike from the Reserve Bank of New Zealand, and this time the central bank didn’t disappoint, raising rates from 0.25% to 0.50%. The RBNZ was poised to press the rate trigger in August, but an outbreak of the Delta variant led to a national lockdown, and policy makers felt that the timing for a rate hike was not optimal. Fast forward to October, when the government has abandoned its zero-tolerance policy on Covid and will rely on a vaccination program to keep Covid at bay. This has made the optics of a rate hike more palatable. The economic conditions clearly justify a rate hike – inflation is above the RBNZ target of 1-3% and the employment market is robust.

Despite the rate raise, which was the first since 2014, the kiwi not only didn’t get a lift but has plunged over a full cent. This can be attributed to growing concerns over the US debt ceiling, Evergrande and a possible energy crisis. The rate hike was well-telegraphed by the RBNZ and as far as the markets are concerned, this was a non-event.

It’s important to keep in mind that the rate hike is not a one-shot deal; the RBNZ plans a series of hikes into 2022, with another rise on the way perhaps in November. Only a handful of central banks have started to raise interest rates, and with the Fed focusing on tapering rather than a rate move, the New Zealand dollar should receive a lift as the RBNZ embarks on a cycle of rate hikes.


NZD/USD Technical

  • There is resistance at 0.7028, followed by 0.7117
  • 0.6855 has weakened in support as NZD/USD has fallen sharply. Below, there is support at 0.6771

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Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.