Take II - RBNZ to hike rates and what it means for the NZDUSD

At its last meeting in August, the RBNZ was expected to become one of the first major central banks to raise interest rates following the recovery from the Covid pandemic.  

On account of a run of hot activity and inflation data, the interest rates market had fully priced in a 25 bp hike, and there was a non-negligible 30% chance of a 50 bp hike.

However, on the afternoon before the meeting, a solitary case of Covid in Auckland that has since triggered seven weeks of lockdowns and 1314 cases nationally saw the RBNZ elect to keep rates on hold at 0.25%.

The vaccination rate since that point has almost doubled from 25% to 46% and allowed the government's Covid elimination strategy to pivot to one that considers the higher vaccination rate. Reflecting this, Auckland's Covid lockdown restrictions will begin to ease in three stages starting this evening.

Based on previous lockdowns, the expectation is that economic activity will rebound as restrictions are eased, allowing the RBNZ to increase the official cash rate tomorrow by 25bp to 0.5% and signal another rate hike before year-end.

The chance of a 50bp hike tomorrow is slim after RBNZ Governor Michael Hawkesby's speech a fortnight ago called for a more cautious rate hiking cycle.

Nonetheless, with 80% of a rate hike priced and an expectation the RBNZ will take yields above those of other major economies, the NZDUSD should receive some short-term support.

Last week the pullback from trend channel resistance and the 200 day moving average .7120/50, accelerated lower likely a position wash of NZD longs ahead of tomorrows RBNZ meeting.

After testing and rebounding from ahead of the bottom of the range, the bias now is for the NZDUSD to rally towards resistance coming from the 200-day ma and trend channel resistance near .7110.

Aware that the NZDUSD needs to break and close above .7110 to indicate the correction from the February .7465 high is complete, and the uptrend has resumed. 

NZDUSD Daily 5th of October


Source Tradingview. The figures stated areas of October 5th, 2021. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation



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 cityindex.com.sg for the complete Risk Disclosure Statement.