The New Zealand dollar has posted four straight winning sessions and is flying high in the Tuesday session. NZD/USD is currently trading at 0.7162, up 1.11% on the day and at its highest level since September 6th.
RBNZ geared to hike, but by how much?
The New Zealand dollar is red-hot, having climbed 3.74% in the month of October. Another item that is soaring is the country’s inflation. Annual inflation rose 4.9% in the third quarter, higher than the forecast of 4.2%. This was the highest inflation rate since 2011 and is almost 2 per cent above the top of the RBNZ’s target band of 3.0%. ASB Bank is projecting that inflation will run above 5% by the end of the year. CPI for Q3, which was released on Monday, rose 2.2%, which was higher than expected.
It is practically a given that the RBNZ will continue to raise interest rates into 2022, but the size of the hikes remains unclear. Last month, RBNZ Assistant Governor Christian Hawkesby signalled that the central bank would move carefully and in small steps. This appears to suggest incremental hikes of 25 basis points, and the bank raised rates from 0.25% to 0.50% earlier this month. However, with inflation running at such high levels and no indications of a drop anytime soon, the bank may have to reconsider its stance and next raise by 50 basis points in order to curb inflation before it poses a threat to the recovery. The RBNZ holds its next policy meeting on November 24th, and the markets have fully priced in a hike of 0.25%, as well as a 50% chance of a 0.50% hike. With some policymakers at the RBNZ in favour of a 0.50% raise, it will be interesting to follow the comments of bank officials ahead of next month’s meeting.
- NZD/USD is closing in on resistance at 0.7170. Above, there is resistance at 0.7293
- There are support lines at 0.6963 and 0.6855
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