The New Zealand dollar has sustained sharp losses on Wednesday. NZD/USD is currently trading at 0.6892, down 0.84% on the day.
RBNZ rate hike sends kiwi lower
At the November policy meeting, the RBNZ raised rates for a second straight month, as promised. Policy makers likely didn’t expect the decision to send the New Zealand dollar for a tumble, but investors were clearly not impressed with the 0.25% rate hike, which brought the policy rate to 0.75%. The markets had priced in a 0.25% move, but there was disappointment from those traders who were hoping that the central bank would show an aggressive side and hike by 0.50%.
The New Zealand dollar took it on the chin, even though the bank signalled that it will need to tighten policy more quickly than anticipated in order to contain inflation. The RBNZ is now projecting that rates will rise to 2% by the end of 2022, a full year ahead of the previous projection in August. The rate statement noted that “the economy continues to perform above its current potential” and that employment was “above its maximum sustainable level”. In other words, the bank is clearly concerned about the economy overheating, and will raise rates to prevent that from happening.
The next policy meeting is not until February, so the New Zealand dollar, which is down 3.89% in November, will have to look elsewhere for support in the meantime. After the decision, Governor Orr said that the bank would act with caution and planned to tighten in 25 bps increments “for now”. Inflation will certainly be on the minds of Orr and his colleagues, as inflation is currently at 4.9% and the RBNZ is projecting it will hit 5.7% in the fourth quarter.
NZD/USD Technical
- There is resistance at 0.6958 and 0.7059
- NZD/USD is down sharply and continues to break below support levels. There is support at 0.6857, which has held since late August. Below, 0.6747 is a monthly support level
