NZDUSD Gains on Hawkish RBNZ Inflation Comments

RBNZ Governor Adrian Orr said the central bank must still anchor inflation expectations. 

NZDUSD – Daily Chart

NZDUSD – Daily Chart

NZDUSD has been on an uptrend for six days, and there is a sign of a potential obstacle here. Coming US data will determine whether it goes to 0.625 or drops to the support again at 0.605. 

The Reserve Bank of New Zealand is still hawkish despite the economy being in a technical recession. A week ago, the local market was making calls that the RBNZ might raise rates twice this year from the current level of 5.5%. The date to watch will be February 28, when the bank holds its next meeting, and a shock rate hike would send ripples around other Western bond markets. 

“We have got more work to do to get inflation expectations anchored to 2%,” Orr said. 

Three banks said the country’s benchmark rate was high enough but would not rule out the RBNZ making another move. BNZ, ASB, and Kiwibank all noted that economic indicators were moving in the right direction to get inflation lower.  

Traders were awaiting the latest FOMC minutes from the Federal Reserve, and that will be the short-term driver into the weekend for the Kiwi dollar vs the US dollar. Analysts need clarification about the rate hike path for both central banks, which has driven the current rally in the NZDUSD.  

The latest comments from the Federal Reserve could reverse the recent rally in the New Zealand dollar if the Fed also takes a cautious tone on inflation.

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