- The NZD / USD is witnessing an aggressive short hedging move in reaction to the upbeat surprise from the RBNZ.
- The RBNZ indicated that it could gradually raise interest rates from the third quarter of 2022.
- A modest rally in US bond yields offers some support to the USD and limits the pair’s gains.
The pair NZD / USD now appears to have entered a bullish consolidation phase, oscillating within a narrow range close to the three-month highs set earlier in the day around the 0.7300 level.
The pair has built on this week’s gains and captured some aggressive buying, marking the third day in a row of positive movement, after the Reserve Bank of New Zealand (RBNZ) announced its monetary policy decision. As expected, the RBNZ left its cash rate at an all-time low of 0.25% and maintained a limit of NZ $ 100 billion for its government bond purchase program.
However, the optimistic surprise came from the attached rate statement, in which the central bank indicated that it could gradually raise interest rates from the third quarter of 2022. The RBNZ also acknowledged the recent notable improvement in the economic outlook amid gradual progress around COVID-19 vaccines and noted that economic uncertainty is diminishing.
The explicit forecast of the cash rate caused an aggressive short-hedging move around the domestic currency and pushed the NZD / USD pair above the 0.7300 level, to the highest level since February 26. The strong bullish move has been supported by a dovish US dollar price action and the prevailing risk appetite environment, which tends to benefit the perceived higher risk NZD.
The USD remains weak near multi-month lows amid expectations that the Fed will maintain its ultra-loose monetary policy stance for a longer period. Several FOMC officials have eased concerns about inflation and reiterated that any price spike is likely to be temporary, forcing investors to lower their expectations for a Fed tightening earlier than anticipated.
Meanwhile, a modest rally in US Treasury yields has prevented investors from opening new bearish positions around the dollar. This, in turn, has been seen as a key factor that has limited any further gains for the NZD / USD pair, at least for now. That said, the lack of a significant pullback suggests that the path of least resistance for the pair is to the upside.
NZD / USD technical levels
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