OANDA

New Zealand dollar soars on RBNZ

OANDA:NZDUSD   New Zealand Dollar / U.S. Dollar
The New Zealand dollar has recorded sharp gains on Wednesday. In the European session, NZD/USD is trading at 0.7303, up 1.02% on the day.

As was widely expected, the Reserve Bank of New Zealand maintained its policy settings and kept the Official Cash Rate (OCR) at 0.25%. The RBNZ also upgraded its economic forecasts for 2o21. This was not a surprise, given the economy's strong recovery. However, the rate statement was more hawkish than the market had expected, in particular the forward guidance as to a potential rate hike. The central bank's OCR projection suggested that we could see a rate hike as early as the fourth quarter of 2022. Ahead of the policy meeting, the well-respected Westpac Group said that they did not expect a rise in rates prior to 2024. The potential of a rate hike occurring much earlier than expected has sent the New Zealand dollar sharply higher.

Will the RBNZ be able to deliver on a rate hike late next year? That will depend on the strength of the economy, in particular, the inflation and employment situation. It is a hazardous game to predict rate hikes, as we saw Westpac forced to wipe egg off its face after its forecast for a rate hike was way off the mark.

It's been a banner week for the kiwi, which has racked gains of 1.8 per cent. The US dollar continues to stumble and is broadly weaker against the majors. We could still see further movement this week, as the US releases key data.

The highlight is US Preliminary GDP for the first quarter, which will be released on Thursday. The initial estimate came in at 6.4%, and the consensus for the second estimate has been upwardly revised to 6.5%. This will be followed on Friday by the Core PCE Price Index, which is the Federal Reserve's preferred inflation gauge. The index is expected to rise to 0.6% in April, up from 0.4%. With higher inflation still a concern, a higher reading than the consensus could boost the US dollar .

NZD/USD is testing resistance at 0.7239, which has held since February 26. Above, there is resistance at 0.7314. There is support at 0.7120 and 0.7076

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