RBNZ Hikes by .5%
We’ve seen plenty of volatility in the New Zealand Dollar over the last 12 hours, following the RBNZ April meeting. The bank took the bull by the horns and announced a .5% rate hike, taking rates back up to 1.5%, in a bid to combat ballooning inflation. While the market was widely expecting a hike, only 6 of 21 economists polled by Reuters ahead of the meeting forecast a hike of that scale, the biggest by the RBNZ in over 20 years.
"Path of Least Regret"
Explaining the move, the RBNZ said in its statement that the move was in accordance with it strategy of following the “path of least regret”. The bank also noted that “A larger move now also provides more policy flexibility ahead in light of the highly uncertain global economic environment.”
NZD Under Pressure
While the move in itself was hawkish, the market reaction has seen NZD under pressure across the European open on Wednesday. As we saw with similar moves recently from the Fed and BOE, the likely driver behind the reaction is concern over the longer-run outlook for the economy.
Concerns Over Growth
While the RBNZ noted that employment is solid and inflation is high, the RBNZ is also dealing with falling house prices and weakened business and consumer confidence. Investors fear what impact surging inflation, as well as higher rates, will have on longer run growth. Additionally, surging COVID rates are raising fears over the prospect of a return to lockdown. These fears are especially magnified given the fresh lockdowns we’ve seen recently in China, which will also weigh on NZD export income given reduced demand from China near-term.
More Hikes Coming
This was the fourth consecutive hike from the RBNZ and, given the tone of concern over the inflation outlook, the bank is clearly signalling more to come. The market is now pricing in at least a further 1.5% of hikes this year. However, if inflation continues to run hotter than RBNZ forecasts, this might be subject to upward revision.
Technical Views
NZDUSD
As per the recent NZDUSD market spotlight, NZDUSD is attempting to breakdown below the rising channel from YTD lows. While below the .6806 level and with both MACD and RSI turning firmly lower, the focus is on a further push down towards the .6703 level initially. Retail market remains firmly long here creating scope for a deeper move over the coming sessions.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.