NZD/USD signal: forecast as RBNZ hikes rates as New Zealand bond yields jump

The NZD/USD exchange rate continued its strong downward trend, reaching its lowest level since August 13 this year after the Reserve Bank of New Zealand (RBNZ) delivered its interest rate decision. It slumped to 0.5835, down by over 2.6% from its highest point in August.

RBNZ interest rate hike

New Zealand’s RBNZ decided to hike interest rates for the second consecutive meeting as it fights to lower inflation, which has remained above the 2% level in the past few years. 

It brought the benchmark interest rate to 2.75%, narrowing the gap with the benchmark US interest rate, which stands between 3.50% and 3.75%. 

In a statement, the RBNZ maintained that inflation is a major issue in the country, with the headline Consumer Price Index (CPI) rising to 4.1% in the June qyuarter, driven by elevated crude oil prices.

While core inflation remains high, officials expect that it will come down to the target range sometime in 2027. The statement added:

“Resilient demand from New Zealand’s trading partners and strong export prices are supporting income growth and investment in export-exposed sectors and regional New Zealand.”

Still, the bank warned that the economy is seeing weak income growth, job insecurity, and flat house prices, which are having an impact on household spending and residential investment in Auckland and Wellington.

A key challenge is that inflation may remain at an elevated level in the coming weeks now that the US and Iran have resumed their kinetic activity. Brent and the West Texas Intermediate (WTI) have continued rising and now sits at $95 and $90, respectively. 

The crisis will likely escalate in the coming days, which will push crude oil and transportation prices substantially in the coming weeks.

This is one key reasons why New Zealand’s and US bond yields have continued rising. The ten-year yield jumped to 4.86%, its highest level since March 23rd this year. It has risen substantially from the June low of 4.358%. 

The same is happening in the United States, where the ten-year and 30-year rose to 4.8% and 5.28%, respectively. These yields have jumped as investors expect that the Fed will hike interest rates as soon as this month. 

NZD/USD technical analysis

NZDUSD chart | Source: TradingView

The daily chart shows that the NZD/USD pair peaked at 0.5990 in August. This was an important level since it was its highest point in May and June this year. 

The pair has now slumped and moved below the ascending trendline that connects the lowest swings since June, July, and August this year. Moving below that level confirmed the bearish breakout. 

The pair has moved below the Major S/R pivot point of 0.5860, and the 50-day moving average. Therefore, the pair will likely remain under pressure in the coming days, potentially to the strong, pivot, reverse level of the Murrey Math Lines too.