The New Zealand Dollar (NZD) has defied the broader market sentiment and surged against the US Dollar (USD) after the Reserve Bank of New Zealand (RBNZ) surprised markets with a hawkish tilt. Despite holding the official cash rate at 5.5% as expected, the RBNZ revised its forecasts for peak interest rates upwards to 5.7% by year-end, compared to the previous forecast of 5.6%. This hawkish surprise signals the RBNZ’s commitment to combatting stubbornly high inflation, which remains above the bank’s 1-3% target range.
The global market narrative has been dominated by expectations of central banks easing monetary policy due to recent signs of slowing inflation. However, the RBNZ’s stance stands in contrast, suggesting a divergence in central bank policy outlooks between New Zealand and other major economies. This has fueled demand for the NZD, with investors seeking higher-yielding assets in a world of rising interest rates.
Technical Analysis
The 4-hour chart shows that the pair is currently trading at 0.61115. The price action sits within an ascending channel, exhibiting a short-term uptrend. The currency pair trades near the 20-SMA (green line), positioned above both the 50-SMA (blue line) and the 100-SMA (orange line). This configuration, with the 20-SMA comfortably above the other SMAs, reinforces the bullish momentum.
A sustained push higher could encounter initial resistance at 0.61417. A confirmed breakout above this level might expose the NZDUSD to further gains towards 0.61849 and 0.62167.
However, the downward-sloping RSI suggests a potential loss of upside momentum. A sustained drop below the 20-SMA could trigger a decline towards the 0.60827 support level. A decisive break beneath this level, accompanied by significant volume, could open the door for further losses towards 0.60464 and 0.59857 in the near term.
Summary
The NZDUSD has broken ranks with the broader market sentiment after the RBNZ surprised investors with a hawkish policy stance. This has propelled the NZD higher against the USD. Technically, the NZDUSD remains within a bullish uptrend channel. A confirmed breakout above 0.61417 could see further bullish price action, while a decline below the 20-SMA might usher in a short-term correction.
Sources: TradingView, Trading Economics, Reuters, Reserve Bank of New Zealand.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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