Early on Wednesday the Reserve Bank of New Zealand will begin its monetary policy meeting and it could be significant as it could become the first central bank to hike interest rates by a sizeable 50 basis points. After raising interest rates three times already, there’s a considerable possibility the Reserve Bank of New Zealand will choose for a more significant hike in April.
RBNZ expects to hike rates; 25 or 50 bps?
The Reserve Bank of New Zealand increased its OCR by 25 basis points to 1.0 percent in February, as predicted. With rising inflation and home prices, the Bank raised rates for the third time in a row. The board said more monetary tightening was needed to cool a hot economy, and that the cash rate would hit 2.2% by year’s end and 2.57% by March 2023, up from 2.1% and 2.3% in November’s predictions.
The RBNZ is expected to hike the Official Cash Rate by another 25 basis points to 1.25%. The extremely slow flow of information between reviews will not assist in making that choice. Near-term inflation is becoming an increasing source of concern for businesses and households. However, housing prices are at last starting to cool down, most probably as a result of the monetary policy actions taken to date. The bank has provided scant information on how it would interpret recent developments.
The only issue for the New Zealand dollar is that the Reserve Bank of New Zealand’s hawkish approach may not provide much of a boost when other central banks are also hawkish in their outlook. Despite an excellent rebound versus the US dollar since late January, the kiwi’s strength can be ascribed in part to an increase in commodity prices. If the Reserve Bank of New Zealand disappoints and raises rates by only 25 basis points, the kiwi might be faced with selling.
Kiwi/dollar tumbles ahead of policy meeting
The impact on the kiwi, however, could in the end be negligible. From a technical perspective, the outlook for kiwi/dollar is currently negative in the short-term. The pair has already erased the sharp upside move towards the almost five-month high of 0.7030, sliding below the uptrend line near 0.6830. The 38.2% Fibonacci retracement level of the down leg from 0.7220 to 0.6524 at 0.6790 could be the last opportunity for a rebound before the negative trend extends towards the 0.6725 barrier.
Alternatively, the pair will need to pierce the 50.0% Fibonacci of 0.6870 and 0.6890 resistance to gain access to the 61.8% Fibonacci of 0.6950. Even higher, the 0.7000 round number and the almost five-month peak of 0.7030 could come next.
