Take II - RBNZ to hike rates and what it means for the NZDUSD

At its last meeting in August, the RBNZ was expected to become one of the first major central banks to raise interest rates following the recovery from the Covid pandemic.

On account of a run of hot activity and inflation data, the interest rates market had fully priced in a 25 bp hike, and there was a non-negligible 30% chance of a 50 bp hike.

However, on the afternoon before the meeting, a solitary case of Covid in Auckland that has since triggered seven weeks of lockdowns and 1314 cases nationally saw the RBNZ elect to keep rates on hold at 0.25%.

The vaccination rate since that point has almost doubled from 25% to 46% and allowed the government's Covid elimination strategy to pivot to one that considers the higher vaccination rate. Reflecting this, Auckland's Covid lockdown restrictions will begin to ease in three stages starting this evening.

Based on previous lockdowns, the expectation is that economic activity will rebound as restrictions are eased, allowing the RBNZ to increase the official cash rate tomorrow by 25bp to 0.5% and signal another rate hike before year-end.

The chance of a 50bp hike tomorrow is slim after RBNZ Governor Michael Hawkesby's speech a fortnight ago called for a more cautious rate hiking cycle.

Nonetheless, with 80% of a rate hike priced and an expectation the RBNZ will take yields above those of other major economies, the NZDUSD should receive some short-term support.

Last week the pullback from trend channel resistance and the 200 day moving average .7120/50, accelerated lower likely a position wash of NZD longs ahead of tomorrows RBNZ meeting.

After testing and rebounding from ahead of the bottom of the range, the bias now is for the NZDUSD to rally towards resistance coming from the 200-day ma and trend channel resistance near .7110.

Aware that the NZDUSD needs to break and close above .7110 to indicate the correction from the February .7465 high is complete, and the uptrend has resumed.

Source Tradingview. The figures stated areas of October 5th, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.