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. At time of writing, 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 the virus 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, China Evergrande Group (HK:3333), 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.