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New Zealand Dollar Outlook: RBNZ Catapults NZD/USD on Possible 2H 2022 OCR Hike

New Zealand Dollar Outlook: RBNZ Catapults NZD/USD on Possible 2H 2022 OCR Hike

Thomas Westwater, Analyst

New Zealand Dollar, NZD/USD, RBNZ, Rate Decision – Talking Points

  • Reserve Bank of New Zealand leaves Overnight Cash Rate at 0.25%, as expected
  • LSAP and FLP programmes held steady as economic outlook still uncertain
  • NZD/USD surges to the upside following the RBNZ policy statement

The Reserve Bank of New Zealand (RBNZ) kept its Overnight Cash Rate (OCR) steady at 0.25% at its May meeting. NZD/USD jolted higher following the decision crossing the wires as traders keyed in on the underlying statement. Although the decision was in line with the consensus forecast, the central bank appears to be growing less dovish, with the OCR seen rising in Q2 of next year.

Outside of its primary policy tool, the central bank’s supplementary policy instruments, the Large Scale Asset Purchase Programme (LSAP) and the Funding-For-Lending Programme (FLP) were also unchanged. The LSAP was maintained at N$100 billion, although it projects not hitting that limit. It is important to note that it is indeed a limit, not a target. While the FLP was extended, both programmes were initiated to combat the economic effects of the ongoing Covid pandemic and have, so far, appeared effective at their intended objective. Regarding closely watched home prices, the RBNZ statement shows an easing in upward pressure.

The updated economic outlook was largely in line with February projections. Annual growth is seen at 3.9% through late 2022. Better-than-expected labor data was cited in the RBNZ’s projections, with Q1 unemployment falling to 4.7% from 4.9% in the prior quarter and wage rates increasing to 1.6%. Q2 labor market data will cross the wires in early August. Inflation has also beat expectations as of late, with the Consumers Price Index (CPI) standing at +1.5% in Q1.

Still, the statement cautions the ongoing pandemic as a major uncertainty to the forecast. Overall, the RBNZ’s policy is largely unchanged at face value, but improving economic conditions have pushed the central bank’s tone to a less dovish one from before. The New Zealand Dollar may benefit from this if the Covid situation continues to improve, which would leave policy on a path to tightening.

NZD/USD Technical Outlook

The New Zealand Dollar’s technical posture has strengthened considerably versus the US Dollar, with the currency pair overtaking trendline resistance, formerly support. Decisively overtaking the trendline now puts the early May multi-month high of 0.7305 in focus. The trendline will likely serve as support on the next downside move. The MACD appears to be gearing up for a potential break above its signal line, which constitutes a bullish signal. Moreover, the Relative Strength Index (RSI) is rising from its neutral 50 mark.

NZD/USD Daily Chart

nzdusd rbnz

Chart created with TradingView


--- Written by Thomas Westwater, Analyst for

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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