RBNZ come out swinging with their most aggressive hike in 22 years

Summary of today’s RBNZ statement:

Increased the Official Cash Rate (OCR) to 1.50 percent
Appropriate to continue to tighten monetary conditions
High level of geopolitical tension and related economic sanctions on Russia
Underlying strength remains in the economy in New Zealand
RBNZ to remain focused on ensuring high inflation does not become embedded into longer-term inflation expectations

Heading into today’s meeting it was widely debated as to whether the RBNZ would hike by 25 or 50 bps points, given they had themselves described the choice as “finely balanced”. Well, today they hike by 50 bps for the first time in 22 years (to the month) which is in itself a signal that inflation is indeed getting too hot handle, despite concerns from geopolitical tensions and the latest round of COVID-19.

Today’s hike is to soothe fears of higher for longer inflation, as it was aimed at lowering inflation expectations. And by keeping the door open for more hikes and as soon as their next meeting, this meeting was about as hawkish as it could have been without just going for a 75-bps hike today.

NZD trades broadly higher following RBNZ meeting

The fact that NZD prices rallied after the meeting tells us that the 50-bps hike was not priced in. And as it was coupled with a hawkish statement then it potentially leaves room for further gains in later sessions.

NZD traded broadly higher against its peers with NZD/JPY leading the way, as the Kiwi took full advantage of an uber-dovish BOJ. NZD/USD is holding above trend support on the daily chart having printed a bullish outside candle yesterday. Whilst this hints at a swing low around 0.6800, the pair is now trapped between the 50 and 200-day eMA’s. Furthermore, it has handed back around a third of today’s gains and its high has met resistance at 0.6900 and near the 200-day eMA.

Whilst NZ now has a 100-bps yield differential over the Fed, that is likely to be reduced back to 50 bps at next month’s FOMC meeting. And as NZD/USD has handed back most of today’s gains already it appears markets are placing a greater emphasis on reduced differential in future. Either way, we need to see either daily close above 0.69 or below 0.68 before we become confident its next directional move is underway.

A close above 0.6900 brings 0.7000 into focus for bulls, whilst a daily close beneath 0.6800 invalidates trend support and strong suggests a lower high has been seen.

How to trade with City Index

You can easily trade with City Index by using 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

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.