New Zealand Dollar Soars as RBNZ Surprises with a More Aggressive Hike, Where to?

The New Zealand Dollar rallied against its major peers after the Reserve Bank of New Zealand surprised markets with a more aggressive rate hike. Heading into the rate decision, the median survey was for the RBNZ to hike rates to 5% from 4.75%. Instead, the central bank went all out with a 50-basis point hike, bringing benchmark lending rates to 5.25%. Policymakers stressed that inflation is still too high and remains persistent, adding that the official cash rate needs to be at a level to reduce prices. The central bank noted that demand is still exceeding supply despite the economy slowing. Interestingly, the committee noted that near-term inflationary pressures have increased. Finally, the RBNZ said that the financial system is well-positioned to manage a slowdown. This move makes the RBNZ stand out from its major peers. For example, the Federal Reserve has dramatically slowed its pace of tightening while the Reserve Bank of Australia paused altogether. Interestingly, shortly after the RBNZ, RBA Governor Philip Lowe conducted a speech. He stressed that their pause does not imply that rate hikes are over.

Looking At Market Pricing, it Seems That Traders Are Still.

pricing in further tightening to about 5.5%, with odds of that about 70% when looking at overnight index swaps. As such, this is placing NZD at an advantage compared to its major peers from a yield perspective. That may continue offering it upside support in the near term. With that in mind, the focus for NZD/USD will turn to the next US non-farm payrolls report on Friday. Stock markets will be closed for the Good Friday holiday, but currency markets will be trading. Still, this means reduced liquidity which raises the risk of volatility given a large deviation from expectations. Remember, markets are still looking at Fed rate cuts this year despite commentary from the central bank to the contrary. A solid print could undermine rate-cut bets, pushing the US Dollar higher. New Zealand Dollar Technical Analysis On the daily chart, NZD/USD has confirmed a breakout above the 50-day Simple Moving Average (SMA). A rising trendline from October seems to be maintaining the upside technical bias. Immediate resistance is the 14.6% Fibonacci retracement level at 0.6388. Clearing this point exposes peaks from January, making for a key zone of resistance between 0.6463 and 0.6576. A turn lower through the trendline could open the door to revisiting the March low at 0.6085.

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