New Zealand dollar turns to US CPI report after RBNZ 50-basis point rate hike

The New Zealand dollar hardly noticed the Reserve Bank of New Zealand (RBNZ) delivering another 50-basis point rate hike. This brought the Official Cash Rate to 2.5% from 2.0% prior, marking the third increment of 50bps moves since earlier this year. Yet, no excitement? These are indeed strange times with central banks around the world having to work extra hard to curtail elevated inflationary pressures.

The lack of action in NZD/USD could have been explained by a market that saw little to no surprise, with large moves now the new norm for many developed central banks. Looking at market expectations, it seems traders see the RBNZ at around 4% by the end of this year. This is closely aligned with what the central bank is seeing ahead.

If you look at the statement in May, the RBNZ saw its benchmark lending rate peaking around 4%. Today, the central bank said that ‘it remains appropriate to keep raising rates at pace’. The little-to-no deviation from the previous sentiment likely kept Kiwi bulls wanting for more. A closer look at the NZD/USD reaction below shows that the pair was slightly lower in the moments after.

What does this mean for the New Zealand dollar? The sentiment-linked currency now faces the incoming US CPI report overnight. The White House expects the next round to be ‘elevated’. More precisely, this amounts to a headline rate of 8.8% y/y in July, up from 8.6% in June. Mind you, last month’s reading is what largely inspired the 75-basis point Fed rate hike.

Another beat in the data risks further fueling already hawkish Fed monetary policy expectations. This is a recipe for disaster that the New Zealand dollar bears, leaving it vulnerable to volatility over the remaining 24 hours. If it is any consolation, the US Citi Economic Surprise Index remains deeply negative, hinting analysts are overestimating the health and vigor of the economy. Perhaps a softer print will unfold.

New Zealand dollar, NZD/USD reaction to the Reserve Bank of New Zealand

New Zealand dollar technical analysis

On the daily chart, NZD/USD confirmed a breakout under the 0.6197 – 0.6227 support zone, opening the door to resuming the dominant downtrend. Immediate support seems to be the 61.8% Fibonacci extension at 0.6071. Clearing the latter exposes the 78.6% level at 0.5934. The 20- and 50-day Simple Moving Averages remain pointing lower. These may hold as resistance in the event of a turn higher, maintaining the dominant downside focus.

NZD/USD daily chart

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