NZDUSD grounded despite a third 50bp RBNZ rate hike

The Reserve Bank of New Zealand has today raised the Official Cash Rate by 50 basis points to 2.50%. It is the RBNZ’s third straight 50bp hike in a row, in a tightening cycle that started back in October.

The move was widely expected by economists and means the RBNZ has become one of the first central banks to hike past neutral, thought to be about 2% in its fight to tame inflation.

At 2.50%, the cash rate is now 150bps from the 3.9% terminal rate forecast by the RBNZ in May, which it is expected to reach by mid-2023 (from 3.35%). Whether this terminal rate is reached is debatable.

Next Monday, Q2 inflation data inflation is expected to see the CPI rise above 7.1%, and employment data to be released in early August is expected to show the labour market remains tight.

“The Committee is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range.”

However, fears of a global recession are escalating, and there is preliminary evidence that the RBNZ tightening cycle is having an impact. Consumer and business confidence has plunged against a backdrop of households facing higher mortgage repayments.

REINZ housing data released this morning showed the housing market has continued to cool, as sales slumped 38.1% from a year ago.

Nonetheless, the RBNZ have again reiterated their hawkish forward guidance and are likely to remain hawkish until it sees firm evidence that inflation has turned lower.

“The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment.”

Following the announcement, the NZD slid from .6130 down to a low of .6112, before rebounding back to .6130.

However, the NZDUSD remains hostage to fears of a global recession, weak risk sentiment, commodity prices, and a surging U.S dollar. A sustained break of .6100c would open up a move towards the psychologically important .6000c area.

Source Tradingview. The figures stated are as of July 13^th 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.