NZ dollar steadies after slide

The New Zealand dollar has stabilized on Thursday, after taking a tumble a day earlier. The pair is currently trading at 0.6925, up 0.16% on the day.

It was a rough day at the office for the kiwi on Wednesday, as the currency fell 0.70%. At one point, NZD/USD was down 1.10%, as the RBNZ’s historic rate hike failed to give the New Zealand dollar any support whatsoever. The central bank raised the cash rate from 0.25% to 0.50%, the first rate hike in seven years, but the market had priced in the move.

RBNZ plans to continue rate hikes

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. However, there are pressing reasons to raise rates. The RBNZ is projecting that inflation will rise above 4% in the short-term, well above the upper limit of the Bank’s target of 3%. The housing sector is red-hot and the labour market is robust. However, there are downside risks to the economy as well – primarily the Covid outbreak in Auckland and the weak global recovery.

These conflicting factors pose a dilemma for policy makers with regard to the timing and frequency of future rate hikes. The RBNZ is looking at a series of hikes lasting in 2022 and could raise rates again as early as November. However, if economic conditions deteriorate, the central bank may have to hold off a second rate hike until after the New Year.

In the US, the focus is on the August non-farm payroll report on Friday. The private ADP employment report climbed to 568 thousand, which was higher than expected. Still, the ADP release is not a reliable indicator of how the official NFP will perform. A print of 500,000+ would likely cement a Fed taper in the next month or two and provide a boost for the US dollar. Anything lower will raise doubts about the timing of a taper and could weigh on the greenback.

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NZD/USD Technical

• There is resistance at 0.7028, followed by 0.7117
• 0.6855 has some breathing room as NZD/USD partially recovered from a sharp slide on Wednesday. Below, there is support at 0.6771

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