NZDUSD Pair Rallies Higher on RBNZ Rate Hike, Hawkish Stance

The NZDUSD currency pair was trading up over 30 pips at writing as the New Zealand dollar, commonly called the Kiwi, rallied against the US dollar. The Reserve Bank of New Zealand’s (RBNZ) interest rate decision drove the Kiwi’s rally. As expected, the RBNZ hiked interest rates by 50 basis points (0.50%) to 4.75%.

The RBNZ maintained its hawkish rhetoric, stating it would keep hiking rates if inflation remained high. Still, analysts expect the central bank to stop hiking rates sometime in Q2 as macro data deteriorates due to the negative impact of the rate hikes. The markets expect the RBNZ to hike rates by 35 basis points during its April 5, 2023, meeting.

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However, we cannot rule out another 50bps rate hike if the upcoming data releases remain positive. Still, most analysts do not expect the Reserve Bank to keep hiking rates in Q3, with many opining that the Kiwi’s performance from Q3 will primarily depend on external factors such as China’s economic performance. 

The US dollar’s performance will also play a critical role in how teh NZDUSd currency pair performs, given that the Federal Reserve insists it will keep hiking interest rates until the US economy cools sufficiently. 

However, the American economy is far from cooling as most investors like to front-run the Fed by buying early in anticipation of the Fed’s actions, which is what the Fed is fighting. Unfortunately, the Fed can do little to stop rampant speculation in the financial markets.

Therefore, soon the fed will have to abandon its hawkish rhetoric as the real economy outside of the financial markets starts suffering from the weight of the rate hikes, which has driven up borrowing costs making it difficult for many firms and individuals to access credit. 

Still, the Fed is leading all the other global central banks in terms of hawkish rhetoric and rate hikes, which has made the US dollar much stronger than all other major currencies. 

Looking at the NZDUSD price chart below, we can see that the currency pair rallied higher at a crucial support level, and it will be interesting to see if the rally will continue to retest the 0.63 resistance zone. 

*This is not investment advice. 

The NZDUSD price chart.

The NZDUSD currency pair was trading up 31 pips (0.50%) at writing as the Kiwi rallied against the US dollar.