NZD/USD: How high can kiwi rise after hawkish RBNZ?

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jul 14, 2021
  • The NZD/USD pair jumped sharply after the hawkish RBNZ decision.
  • The bank left interest rates unchanged at 0.25%.
  • It also signalled that it will end the LSAP program later this month.

The NZD/USD pair bounced back in early trading after the hawkish Reserve Bank of New Zealand (RBNZ) interest rate decision. It rose from Tuesday’s low at 0.6917 to more than 0.7020. 

RBNZ interest rate decision

New Zealand had one of the best Covid responses in the world. The country recorded just a few infections and about 25 deaths. Therefore, this growth helped the country to stage a relatively stronger recovery than some of its peers.

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It is against this backdrop that the RBNZ held its latest monetary policy meeting. In it, the bank decided to leave interest rates unchanged at the record low of 0.25%. The bak also left the funding for lending program intact. 

At the same time, the RBNZ decided to end the Large Scale Asset Purchase (LSAP) program by July 23 this year. It attributed this to the fact that the country’s economy is doing better than expected. This trend will likely continue as the crucial services sector reopens. It said:

“The Committee agreed that further asset purchases under the LSAP programme were no longer necessary for monetary policy purposes and directed staff to halt purchases by 23 July 2021.”

In the statement, the bank mentioned that domestic spending and exports have helped to compensate for the loss of tourism. It also noted that the labour market was relatively stronger than expected. 

The NZD/USD price action helped erase some of Tuesday’s losses after the US published the latest consumer inflation data. The numbers showed that the US inflation rose by 5.4% in June while core CPI rose by 4.6%. These were the highest figures in decades.

Therefore, the US inflation data will put pressure on the Federal Reserve to start shifting more hawkish. The pair will react to a statement by Jerome Powell and the latest Beige Book.

NZD/USD technical analysis

NZD/USD technical chart

The hourly chart shows that the NZD/USD formed a double-top pattern at 0.700 early this week. It declined below its neckline at 0.6950 after the US inflation data on Tuesday. The pair then reversed this price action during the Asian session after the latest RBNZ decision. It has moved above the 25-and 50-period moving average while the Relative Strength Index (RSI) has moved close to the overbought level. Therefore, the pair will likely keep rising as bulls target the next key resistance at 0.7050.

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