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NZD/USD Rallies as RBNZ Says Rate Hikes To Keep on Coming

NZD/USD Rallies as RBNZ Says Rate Hikes To Keep on Coming

Baruch Spier,

Talking Points:

  • The RBNZ raised the Official Cash Rate to 3.00%
  • The central bank forecasted stronger inflation pressures
  • NZD/USD rallies despite exchange rate warnings

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The Reserve Bank of New Zealand raised its Official Cash Rate for the second consecutive month in April, hiking the rate by 25 basis points to 3.00%, as was expected by all Bloomberg surveyed economists.

Following the initial rate release, the RBNZ announced that the extent of future rate hikes depends on data, and the central bank will continue to raise the Official Cash Rate until they are no longer adding to demand. The RBNZ added that the higher target rate should keep future changes in the Consumer Price Index near the central bank’s 2% target, as inflation pressures will increase over the next 2 years. The RBNZ also estimated that the GDP grew 3.5% in the first quarter of this year.

The RBNZ said that the current high exchange rate for the New Zealand Dollar is not sustainable and remains a headwind for exporters. The central bank said it will assess the impact of a high currency exchange rate on inflation pressures.

The RBNZ’s comments about further rate hikes and building inflation pressures was perceived by Kiwi traders as hawkish and indicative of further tightening of policy in the future, however the comments about the unsustainable exchange rate may have tamed bullish pressures in New Zealand Dollar trading.

NZD/USD 1-Minute: April 23, 2014

NZD/USD Rallies as RBNZ Says Rate Hikes To Keep on Coming

The New Zealand Dollar rose over 35 pips against the US Dollar following the release, and the pair may next find resistance by the 2013 high at .8676. Currency Analyst David Song warns that the bearish RSI divergence highlights risk for a larger NZD/USD decline.

Chart created by Baruch Spier using Marketscope 2.0. Add DailyFX Support/Resistance to your charts at FXCM Apps.

-- Written by Baruch Spier, DailyFX Research. Feedback can be sent to instructor@dailyfx.com .

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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