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NZD: Buy the Rumor sell the fact?


14 October 2021

The RBNZ confirmed a 25-basis-point rate raise, which had been widely anticipated and already factored into the markets. The NZD, however, did not benefit from the boost. Given that a 25-basis-point raise was widely anticipated and priced in prior to the meeting, the bar for a hawkish surprise was rather high heading into the meeting, and the fact that the RBNZ made no major modifications, the buy-the-rumour-sell-the-fact reaction was hardly surprising.

In the meeting, the RBNZ forecasted a total of seven rate hikes between Q4 of this year and H1 of 2023, which caused the NZD to move lower, but the general rate path remains unaltered, creating some demand.The most significant element of the RBNZ’s statement, however, was its assertion that “the existing COVID-19-related restrictions have had no major effect on the medium-term projections for inflation and employment since the statement they made in August.” Despite the possibility of inflation exceeding 4% in the near future, the bank’s inflation and employment outlooks remain intact.

The NZD now has the highest interest rate among the major currencies, at 0.50%.If conditions are good and even if we get just half of the expected hikes, the RBNZ will still remain much stronger than the other major currencies. As the interest rate rises in the next months, the NZD could gain carry appeal, especially against JPY, CHF, and EUR. So long as the virus is contained, the NZD’s medium-term bias expected to be positive.

NZDUSD price technical analysis

The NZDUSD price remains well bid above the 20-period and 50-period SMAs on the 4-hour chart. However, the recent surge still remains within the consolidation range. The broader cautious mode in the markets it doesnt look attractive for the technical traders at the moment. Despite the low volatility, the bias looks mildly positive, supported by the key SMAs.

The pair has to overcome the key hurdle at 0.7000 level, which is also a psychological mark. Any sustained move beyond the level may urge the buyers to turn attention to the horizontal level around the mid-0.7000 area. On the flip side, 0.6910 remains a strong support area ahead of 0.6860.

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