NZD In The Driving SeatThe New Zealand Dollar has been the strongest performer across the European open today, extending the rally seen over the Asian session in response to the latest RBNZ meeting. As expected, the RBNZ hiked rates again overnight, marking the third consecutive rate rise, to take the bank’s headline rate back up to 1%. At this level, rates are now back up to where they just ahead of the pandemic taking hold in February 2020.RBNZ Battling InflationThe market was widely expecting the bank to lift rates, in line with hawkish forward guidance given at previous meetings and the ongoing rise in inflation. CPI was seen hitting thirty years over the final quarter of 2021 at 5.9%, cementing the need for the bank to lift rates further. Indeed, along with this month’s rate hike, the RBNZ also advised that further hikes are necessary. In the statement issues alongside the decision, the RBNZ noted: “The Committee agreed that further removal of monetary policy stimulus is expected over time given the medium-term outlook for growth and employment, and the upside risks to inflation.”Further Rate Hikes To FollowFollowing the rate hike, NZD has been firmly higher with the currency gaining across the board. Against the Dollar in particular, NZD is now up almost 4% off the YTD lows, with similar moves seen against EUR and GBP. Indeed, the current rally comes despite the broader risk off tone to markets in recent week amidst the ongoing Russia/Ukraine situation. Given NZD’s ability to rally here, despite weaker risk assets, this suggests a high degree of short-covering amidst this shift in the RBNZ outlook. With the market now widely expecting further rate hikes from the RBNZ, there is plenty of room for NZD to gather further momentum into Q2.Technical ViewsNZDUSDThe rally in NZDUSD has seen price breaking firmly back above the .6703 level with the market now testing the top of the corrective bull channel (potential bear flag). Given the overall downtrend, it is still early to call a reversal. However, while .6703 holds as support, the focus near-term is on a break of the .6806 level and .6863 above, encouraging fresh bullish momentum for a broader move higher.
Source: Tickmill