Breakdown of the latest developments on the global exchanges
May 26, 2021, 9:38 AM GMT

More Hawkish-Sounding RBNZ Sends the NZDUSD Soaring

More Hawkish-Sounding RBNZ Sends the NZDUSD Soaring

The Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand (RBNZ) met earlier today and expectedly decided to maintain the near-negative Official Cash Rate (OCR) unchanged at 0.25 per cent.

The rhetoric in RBNZ's policy statement was somewhat more hawkish-sounding than initially forecasted, which sent the New Zealand dollar soaring against the greenback. The NZDUSD thus remains on its strong uptrend.

The NZDUSD continues to advance in a strong uptrend following RBNZ's monetary policy meeting from earlier  today

As can be seen on the daily chart above, the NZDUSD was consolidating near the channel's lower boundary shortly before the commencement of the policy meeting. This was underpinned in our Weekly Expectations material.

Following the conclusion of the policy meeting at the outset of today's trading session, the NZDUSD broke out above the 23.6 per cent Fibonacci retracement level at 0.72332. The price also managed to penetrate above the 20-day MA (in red), which serves as a floating resistance.

The price action is currently struggling to shoot above the major resistance level at 0.73150. If it manages to do so, the NZDUSD would be ready to probe the channel's upper boundary before establishing a likely throwback to 0.73150 from above.

The MACD indicator confirms the uptick in bullish momentum in the short term by registering a bullish crossover in the making.

Eyeing commodity prices, inflation

The Committee observed that headline inflation is moderately rising but still lags behind the longer-term goals of the bank. Nevertheless, the current trend of rising commodity prices was seen as a step in the right direction for New Zealand's economy.

Inflation in New Zealand is rising, but remains below RBNZ's longer-term target

The latest economic trends in New Zealand and globally were discussed further in the policy statement:

"The global economic outlook has continued to improve, with ongoing fiscal and monetary stimulus underpinning the recovery. New Zealand’s commodity export prices have benefited from this rise in global demand. However, divergences in economic activity, both within and between countries, remain significant."

Finally, the Committee projected that inflation pressures are likely to subside over the third quarter, similarly to what is anticipated by the Federal Reserve, which would likely decrease the pace of recovery over the same period. That is why the RBNZ is reluctant to lift the OCR at the present time.

The accommodative policy stance of most central banks is thus likely to remain active at least until early 2021.