The New Zealand dollar has soared on Wednesday, punching above the symbolic 70-level. Currently, NZD/USD is trading at 0.7015, up 1.07% on the day.
Suddenly, the hawks are everywhere
This was the caption in one financial publication this morning, as the Reserve Bank of New Zealand surprised the markets by announcing that it would halt asset purchases as of July 23. This opens the door to reducing the LSAP stimulus programme and has raised speculation over a rate hike.
The central bank has become more hawkish, and the rate statement made no mention of inflation and employment targets requiring “considerable time and patience”, which was stated in the previous rate statement. Instead, the statement noted “that the significant level of monetary support in place since mid-2020 could be reduced sooner”.
Will we see a rate hike in August? With the halt in asset purchases, policymakers are now free to raise the Official Cash Rate from the record low level of 0.25%. A rate hike is just an option, and the direction that the bank chooses will depend greatly on two key releases in the coming weeks – CPI for Q2 (July 16) and the employment report (Aug. 4).
The RBNZ has set an inflation target in the 1-3% range, and if CPI comes in above 3%, the bank will face pressure to raise rates. On the employment front, unemployment is currently at a low level of 4.7%, and if there are signs of a shortage of workers and pressure on wages, then policymakers will be giving serious consideration to a rate hike.
Attention will shift from the RBNZ to inflation, with New Zealand releasing Q2 CPI on Thursday (22:45 GMT). Inflation is expected to jump to 2.8% YoY, up sharply from 1.5% beforehand.
NZD/USD Technical
- There is resistance at 0.7095. Above, we find resistance at 0.7191
- On the downside, there is support at 0.6913 which is protecting the round number of 0.6900. Below there is support at 0.6827