RBNZ Delivers 50-Basis Point Rate Hike and a Kiwi Dollar Run at $0.5820

It was a busy start to the Asian session for the NZD/USD, with the RBNZ delivering its October monetary policy decision. There were no New Zealand economic indicators to distract the markets ahead of the policy decision.

In line with expectations, the RBNZ lifted the Official Cash Rate (OCR) by 50 basis points to 3.50%.

‘The Committee deemed it appropriate to continue to tighten monetary policy conditions at a pace to maintain price stability and contribute to maximum sustainable employment.’

Salient points from the RBNZ Rate Statement included,

• Core consumer price inflation is too high, and labor resources are scarce.
• Global demand for goods and services exceeds supply capacity, placing upward pressure on prices.
• The war in Ukraine adds further pressure to food and energy prices.
• While easing supply chain constraints and falling crude oil prices have eased price pressures in some economies, core measures of inflation have increased and are persistent.
• New Zealand’s trading partners face weaker growth as central banks attempt to tackle inflation with higher rates.
• Domestically, spending remains resilient, supported by high employment and household balance sheets.
• Labor shortages and wage pressures constrain productive capacity.

The market focus will now shift to US economic indicators. Another soft set of numbers could further narrow monetary policy divergence. ADP nonfarm employment and ISM Non-Manufacturing PMI numbers will draw interest later today.

NZD/USD Price Action

This morning, the Kiwi was up 0.83% to $0.57773.

The Kiwi Dollar fell to an early morning low of $0.57188 before an RBNZ-fueled rally to a high of $0.58052.

In response to the 50 basis point hike, the Kiwi Dollar broke through the First Major Resistance Level (R1) at $0.5766 and the Second Major Resistance Level (R2) at $0.5801 before easing back to sub-$0.58.

Technical Indicators

The NZD/USD needs to avoid R1 and the $0.5723 pivot to retarget the Second Major Resistance Level (R1) at $0.5801 and the morning high of $0.58052. Later today, US economic indicators will need to reflect softer labor market conditions to support an extended rally.

In the case of a breakout session, the Kiwi would likely test resistance at $0.5820 before any pullback. The Third Major Resistance Level (R3) sits at $0.5880.

A fall through R1 and the pivot would bring the First Major Support Level (S1) at $0.5687 into play. However, barring a market flight to safety, the NZD/USD pair would likely avoid sub-$0.5650 and the Second Major Support Level (S2) at $0.5644.

The Third Major Support Level (S3) sits at $0.5565.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The NZD/USD sits below the 100-day EMA, currently at $0.58124. The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA flattened on the 200-day EMA, delivering mixed signals.

An NZD/USD move through R2 ($0.5801) and the 100-day EMA ($0.58124) would give the bulls a run at $0.5820. The 200-day EMA sits at $0.59368. However, a slide through the 50-day EMA ($0.57303) would bring S1 ($0.5687) into view.