The New Zealand dollar has been strengthening its positions throughout the market for the second day in a row – including in a pair with the US currency. The US dollar index actually froze in place, after rising against the background of strengthening anti-risk sentiment. Greenback took a passive position, allowing buyers of "kiwi" to organize a counteroffensive upward. Moreover, there is a suitable reason for this: the results of today's meeting of the Reserve Bank of New Zealand reflected the hawkish intentions of the regulator. The central bank not only raised the interest rate, but also voiced quite aggressive rhetoric regarding the pace of further tightening of monetary policy parameters.
The RBNZ raised the interest rate by 25 basis points to 1.0% on Wednesday. The Central Bank also announced that it has begun a gradual reduction in bonds as part of a large-scale asset purchase program.
Such a decision was quite expected, given the previous rhetoric of the representatives of the Central Bank, as well as the dynamics of key macroeconomic indicators. In particular, the unemployment rate fell in the fourth quarter of last year to 3.2% (the forecast was at 3.3%). Unemployment has been declining for five consecutive quarters, after peaking at 5.3% in the third quarter of 2020.
The data on inflation growth in New Zealand also "pleases the eye" of NZD/USD buyers. For example, the latest release was completely on the side of the New Zealand dollar. In the 4th quarter of last year, the consumer price index rose to 1.4% (on a quarterly basis) while the growth forecast was up to 1.3%. On an annualized basis, the indicator has been growing for four consecutive quarters, and in the 4th quarter of 2021, it rose to 5.9%. This is a 31-year high. The structure of this release suggests that prices were rising in all sectors of the economy. As the head of the RBNZ noted today, high inflation has ceased to be "temporary", given the pace and duration of growth of the main inflation indicators.
Summing up the results of today's meeting of the regulator, the head of the Reserve Bank Adrian Orr announced a further rate increase, and at a fairly "sporty" pace. For example, he did not rule out a 50-point increase at one of the next meetings. According to him, inflation is "significantly higher" than the target range of the Central Bank, and is likely to return to the two percent mark "only in the coming years." He also positively assessed the latest releases, stating that the New Zealand economy "continues to perform above its potential."
In other words, Orr's rhetoric was unequivocally hawkish, without any pitfalls. He made it clear that the rate will increase not only this year, but also next year. The hawkish attitude of the head of the RBNZ is consistent with the forecasts of many experts who, back in January, allowed the implementation of such a scenario.
According to experts of Australia and New Zealand Banking Group, the Reserve Bank will raise the interest rate at an aggressive pace: from the current level to the three percent mark - by April next year. Given the fact that there are 7 scheduled meetings of the Central Bank until April 2023, the New Zealand regulator will need to really keep a "sporty pace" in this matter. Again, this scenario is consistent with the intentions of Andrian Orr to raise the rate, including 50-point steps. Analysts of Kiwibank also suggested that RBNZ will raise the rate 7 times this year, reaching 2.5% in the first quarter of 2023. That is, the de facto rate will increase at each meeting.
It should be noted here that the US Federal Reserve has not yet developed a common position regarding the pace of monetary tightening this year. The voting members of the Committee include both hawks (Bullard, Bowman) and conservatives (George, Williams). Therefore, it is impossible to say that the American regulator is ready to implement the most hawkish scenario at the moment. This fact will provide background support to buyers of the NZD/USD pair, at least in the medium term. Therefore, longs are now a priority, especially given the technical picture.
From a technical point of view, the NZD/USD pair is on the upper line of the Bollinger Bands indicator on the daily chart. Also on this timeframe, the price is above the Tenkan-sen and Kijun-sen lines, which are under the Kumo cloud, thus forming a Golden Cross signal, which signals an increased probability of a trend change from down to up. But to confirm these assumptions, buyers of the pair need to consolidate above 0.6750, thus marking the priority of long positions. Judging by the results of the past week, the bulls are capable of such a breakthrough - any attempts to reduce are suppressed by buyers. Therefore, it is most expedient for the pair to open longs with the first target at 0.6805 (this is the lower boundary of the Kumo cloud on D1).
