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NZD/USD unimpressed by a massive rate hike

There was no volatility following the latest RBNZ decision as traders are likely getting ready for today's US inflation data.

The New-Zealand dollar, also known as the Kiwi, traded somewhat higher on Wednesday, hovering near 0.6150 as traders rather ignored the latest central bank meeting.

RBNZ delivers a significant rate hike

The Reserve Bank of New Zealand (RBNZ) announced a 50 basis point hike to the Official Cash Rate (OCR), bringing it from 2% to 2.5%, as was largely anticipated, during its monetary policy meeting on July 13.

RBNZ said: β€œThe Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment.”

Additionally, the committee is resolute in its commitment to ensuring consumer price inflation returns to within the 1 to 3% target range. Accordingly, the committee agreed to continue to lift the OCR to a level where it is confident consumer price inflation will settle within the target range.

The RBNZ continues to follow its May MPS OCR guidance, which calls for the OCR to be 3.5% by November and a 4% terminal rate in 2023.

β€œWe expect the RBNZ to increase the OCR by 50 bps at next month’s meeting. However, the absence of a mention of the ‘least regret’ approach may suggest the Bank is subtly preparing the market for a ‘step down’ in the pace of rate hikes.” Economists at TD Securities said today.

You can also read:Β Detailed analysis of FOMC Minutes

Moreover, due to a declining property market and a weaker economic outlook, analysts at ING anticipate increasing chances of a recalibration in the hawkish tone at the August meeting (or at any rate before the end of the year).

β€œIn any event, NZD/USD should remain driven by external factors for now, and 0.60 might be tested in the coming weeks,” they added.

US inflation approaching 10%?

The annual CPI inflation rate, which includes food and energy, is the key figure for today. It is forecast to rise from May’s 8.6% level to 8.8%, marking a 40-year high. However, the whisper number is above 10%.

Such a high number is likely to persuade the US central bank of the importance of continuing with aggressive interest rate hikes, on top of the rise of 75 basis points at its most recent meeting, even if doing so carries the risk of plunging the US economy into recession.

Falling Wedge

The daily chart looks like a falling wedge pattern, usually a robust bullish reversal pattern. Thus, should the kiwi close above 0.6160 today, it might be a bullish signal. First, however, the NZD must close above 0.62 to confirm a breakout. In that case, the pair might fly toward 0.63 pretty quickly.

There is also a bullish divergence between the RSI indicator and the price, further reinforcing the reversal pattern.

NZD/USD daily chart, Source: AuthorΒ΄s analysis, tradingview.com

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