NZD/USD analysis: The RBNZ’s latest 25bp hike could be their last

Key takeaways

The RBNZ increased rates by 25bp to 5.5%, below some estimates of a 50bp hike
Forecasts retained a terminal rate at 5.5%
The statement was relatively dovish, compared to prior statements
The government’s budget is not deemed to be as inflationary as feared
Initial confusion over a pause stemmed from incorrect reporting by some data vendors (and slow RBNZ website)
NZD pears broadly lower by ~1%

Depending on who is asked, the RBNZ hiked rates by 25bp as expected (or not by the 50bp as expected some others). A dovish statement with an unadjusted peak rate at 5.5% means the RBNZ have signalled the end of their tightening cycle, although warned that rates will need to remain ‘restrictive’ (high) for soe time.

NZD pairs were around -1% lower, AUD/NZD rose 0.9% and we’re not seeing any immediate appetite to support the Kiwi dollar at the time of writing, although neither are prices dropping further.

But the release was not plain sailing, as Reuters and presumably any other data vendor which copies them, initially printed a hold at 5.25% before correcting to 5.5%. The RBNZ website was slow also slow to update to the latest report (at least it was on my end). By quite how much of an impact on the Kiwi’s selloff sue to the incorrect figure is hard to decipher, but we can see that the New Zealand dollar was heavily sold off across the board and it has not really recovered since.

A relatively dovish RBNZ statement

In relative terms, the statement was the most dovish the RBNZ have released in quite some time and certainly this tightening cycle. And by that we mean it was not as hawkish as expected. The majority of the statement is tipping its hat to slower demand overall and, whilst migration and tourism is a support demand to a degree, it seems the RBNZ are not overly concerned with the government’s budget which was deemed by many as highly inflationary. Weaker than expected retail sales data released ahead of the announcement may have also helped with their outlook.

Summary of the RBNZ statement and MPS

The level of interest rates are constraining spending and inflation pressure
The OCR will need to remain at a restrictive level for the foreseeable future
Global growth remains weak and inflation pressures are easing
New Zealand’s inflation is expected to continue to decline from its peak and with it measures of inflation expectations
Consumer spending growth has eased and residential construction activity has declined
Businesses are reporting slower demand for their goods and services
Businesses report that a lack of demand, rather than labour shortages, is now the main constraint on activity
Net inward migration and tourism spending is supporting demand
Broader government spending is anticipated to decline in inflation-adjusted terms and in proportion to GDP

NZD/USD daily chart

After failing to hold above 63c in recent sessions, momentum has turned sharply lower and seen a clean break beneath the 20, 50, 100 and 200-day EMAs. NZD/USD is on track for its worst day in seven, although prices are showing signs of stability around the 0.6182 low ahead of the European open. This risks a minor rebound from current levels but, with trades across Europe and the US yet to react, the potential for a second round of selling remains. Ultimately, any pullback towards the 0.6235 lows could be seen as a gift to bearish swing traders, assuming any such pullback makes it that far. But with the RBNZ signalling the end of their tightening cycle, we suspect a move down to 61c is feasible, especially if the US dollar weakens.

NZD/USD 4-hout chart

As it appears as though an ABC correction has completed, the turn lower in momentum should mean we’re now in a wave III of an impulsive move lower. If so, a conservative 161.8% projection sits at 0.5975. However, there are several levels along the way, such as the YTD lows around the YTD low and 100% projection, and of course the 60c level which could provide strong support. Initially at least.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.