The New Zealand Dollar has turned sharply higher overnight following the RBNZ May monetary policy meeting. The bank held monetary policy unchanged, as expected, though the statement delivered alongside the rate decision was skewed more to the hawkish side than some were expecting.
Rates to Lift Next Year
Perhaps the most notable aspect of the meeting was that the RBNZ published a set of OCR rate projecting for the first time in more than a year. Previously the RBNZ had refrained from offering these projections due to the uncertainty in the outlook. Under the new projections, the RBNZ now sees rates lifting from around Q3 2022. This is much earlier than the 2024 lift-off target that many other central banks such as the Fed and the ECB are stating and is more in line with the BOC’s projections.
Activity To Rebound Firmly
Along with the upgraded rates projections, the RBNZ also upgraded its economic forecasts. While it noted that the lack of tourism impacted the summer season it now forecasts a significant boost over the remainder of the year. However, as we have heard from other central banks, while the RBNZ expects inflation to spike in the near term, this lift is expected to be temporary in nature.
Easing To Remain… For Now
With this in mind, the RBNZ said that it will continue to keep the current monetary support in place until its 2% target is sustained and employment is at maximum level. Interestingly, employment ‘at” its maximum level, was altered from “at or above”, suggesting the bar has been lowered slightly there; another hawkish shift. The RBNZ now also forecasts wage growth to hit levels not seen since before the global financial crisis which should be a key catalyst for inflationary pressure.
NZD Well Supported
In all, the RBNZ meeting was a firmly hawkish event. While the bank acknowledged that uncertainty and risks remain, the meeting was much more focused on the recovery and looking ahead to the point of raising rates. With commodities rallying hard and the market now given a timeline for a rate hike, NZD looks likely to continue higher in the near term.
Technical Views
NZDJPY
NZDJPY is now breaking out above the 79.19 level highlighted in the recent Market Spotlight. With the RSI turning higher and the MACD about to turn bullish, while price holds above here, bulls will be looking for a move up to 81.53 firstly. To the downside, any correction back below 79.19 should find support into the rising trend line.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.