The NZD/USD pair, also known as the Kiwi, was down 1% Wednesday, dropping despite a relatively hawkish monetary policy meeting earlier in the day. At the time of writing, the pair was trading at 0.6880.
Hawkish RBNZ fails to help Kiwi
The Reserve Bank of New Zealand hiked the Official Cash Rate by 0.25% to 0.5% , raising rates for the first time in seven years. Additionally, it said that further tightening would continue.
The following statement further read: Economic activity will recover quickly as alert level restrictions ease. The headline cpi inflation is expected to increase above 4 percent in the near term. Therefore, it is appropriate to continue reducing the level of monetary stimulus.
Despite the rather hawkish wording of further reducing stimulus and more tightening, the Kiwi fell notably, as previously said.
We would argue that for central banks more generally, hiking into current global economic conditions is not as currency supportive as hiking when conditions are more favourable. Rate hikes when growth could deteriorate are never greeted with the same enthusiasm,
Additionally, New Zealand covid conditions worsen with a slow rise in virus infections. As a result, the neverending local lockdowns will likely be extended, further hindering economic growth, but boosting inflation.
From other news, the US ADP employment report for September was released and increased to 568,000, up from 374,000 previously. Analysts had expected 428,000, so it was a huge upside surprise. That was the biggest increase since June
The numbers come ahead of Friday’s monthly non-farm payrolls (NFP) report from the Labor Department, which is currently forecast to show the US added 450,000 jobs in September.
The Kiwi is now testing the short-term uptrend line, which is currently near 0.6870. If the pair drops below it, we could see a quick decline toward the actual cycle lows at 0.68. A breakdown below that level would confirm the medium-term downtrend, most likely targeting the 0.65 zone.
Alternatively, the resistance seems to be at this week’s highs at around 0.6980, followed by the psychological level and the 50-day moving average at 0.70. Thus, the short-term outlook appears neutral and unclear, while the medium-term trend seems bearish, but it needs to be confirmed by new lows.