NZD surges as RBNZ Governor Orr’s hawkish stance propels the New Zealand Dollar, signaling the potential for further strength in forex markets.
KEY POINTS AND MARKET INSIGHTS
- The NZD gains strength amid a dovish shift by the Fed and hawkish comments from RBNZ Governor Orr.
- Attention turns to the US for the remainder of the trading week.
- Technical indicators suggest a potential downside for NZD in the near term.
FUNDAMENTAL OVERVIEW OF THE NEW ZEALAND DOLLAR
The New Zealand dollar experienced a boost against a weakened US dollar following the recent Reserve Bank of New Zealand (RBNZ) interest rate decision. Despite the central bank maintaining the current interest rates, RBNZ Governor Orr conveyed a notably hawkish and authoritative stance. Key statements from Governor Orr include:
- “Expressing concerns about prolonged inflation outside the prescribed range.”
- “Noting an upward trend in the 10-year inflation expectation.”
- “Highlighting unease about rising longer-term inflation expectations.”
- “Emphasizing the significance of global interest rates and the RBNZ’s attentiveness to the global economic outlook.”
- “Asserting that elevated rates are necessary for an extended period, urging banks to take heed.”
- “Affirming the RBNZ’s flexibility to respond to unforeseen shocks, irrespective of scheduled policy meetings.”
New Zealand Dollar Surges on RBNZ Governor Orr’s Hawkish Stance
While market expectations currently do not foresee additional rate hikes in 2024, the RBNZ’s future actions will be contingent on evolving economic data. A sustained uptrend in inflation figures could prompt the RBNZ to consider further tightening monetary policy.
The USD experienced a notable decline following a shift in tone by one of the Federal Reserve’s key hawks, Mr. Williams, who suggested a less aggressive stance. Mr. Williams hinted at the possibility of no future rate hikes and potential cuts if inflation continues to decelerate. This dovish outlook prompted a recalibration in implied Fed funds futures, indicating a market expectation of approximately 25 basis points in cumulative rate cuts by December 2024. US Treasury yields also declined across the yield curve. Today’s focus includes US GDP data, additional Fed speakers, and the release of the Fed’s beige book, with tomorrow’s core PCE print (the Fed’s preferred inflation measure) taking center stage.
NZD/USD reveals a recent pullback from the psychological resistance level of 0.6200 as the pair enters overbought territory on the Relative Strength Index (RSI). Typically, markets anticipate a pullback, especially if the current candle closes with a pronounced upper wick. However, a dovish sentiment could further fuel NZD’s strength. The short-term directional bias is heavily contingent on USD movements, but from a technical analysis perspective, a preference for some NZD weakness is apparent.
Key Levels Resistance
- Trendline resistance
Key Support Levels
- 200-day moving average
IG CLIENT SENTIMENT DATA: BULLISH
IG Client Sentiment (IGCS) data shows that retail traders hold long positions on the AUD/USD, with 49%.