The Reserve Bank of New Zealand held the Official Cash Rate at 0.25% due to the “heightened uncertainty with the country in a lockdown”. Predictably the NZD/USD fell sharply in response, but the move proved short-lived as the RBNZ statement and OCR projections were quite hawkish.
It is clear from the statement and minutes that the decision to remain on hold was a temporary one and settings are ripe for monetary tightening, once there is clarity on New Zealand’s COVID outbreak.
Analysts took special note of the RBNZ’s OCR projections that indicated an aggressive tightening cycle through the end of 2022. Imre Speizer, head of NZ strategy at Westpac told Reuters: “The OCR track, which they’ve published, says they will probably go October and November… it’s aggressive because it goes above 2% – that’s a pretty punchy track.”
The NZD/USD pair struggled to capitalize on the post-RBNZ recovery move, instead met with some fresh supply near mid-0.6900s. The pair retreated over 60 pips from daily swing highs and has now slipped back below the 0.6900 round-figure marks.
Worries that the continuous rise in new COVID-19 cases could lead to a global economic slowdown, along with political tensions in Afghanistan, continued weighing on investors’ sentiment. This, to a larger extent, helped offset a subdued US dollar price action and was seen as a key factor exerting pressure on the perceived riskier kiwi.
NZD/USD Short (Sell)
Enter at: 0.68808