The New Zealand dollar is finally in positive territory on Tuesday, after posting five consecutive losing sessions.
RBNZ rate decision loomsThe RBNZ is widely expected to increase rates from the current 1.00% at the Wednesday meeting, but by how much?
Pundits are calling the rate decision a “coin toss” between a 0.25% and a 0.50% increase. Most analysts expect a 0.25% move, but the markets are clamoring for a super-size 0.50% move, given soaring inflation. If investors don’t get the 0.50% move, the New Zealand dollar could take a tumble. With the RBNZ well into its rate-hike cycle, the markets will be combing through the rate statement to expect the bank to be hawkish in its forward guidance.
The central bank finds itself caught between a rock and a hard place ahead of this key rate decision. There is strong pressure to contain inflation, which could hit 7%, and the most effective inflation-busting tool is one or more 0.50% rate hikes. At the same time, a sharp rise in interest rates could cause the economy to stall and result in a recession. With the unexpected Ukraine war causing plenty of turbulence in the markets and consumer and business confidence at low levels, the RBNZ has good reasons to avoid a 0.50% hike.
NZIER Business Confidence dropped sharply in Q1, falling from -28 to -40. The retail sector was particularly pessimistic, as the Omicron wave caused many consumers to stay home, even with relaxation in health restrictions. The survey found that businesses are concerned about spiraling inflation and expect the RBNZ to continue raising interest rates. As well, businesses are struggling with continuing labor shortages. It’s not a pretty picture, and the survey found that firms plan to scale back on investment due to the heightened uncertainties facing businesses.
NZD/USD Technical- There is resistance at 0.6902, followed by 0.6980
- NZD/USD has support at 0.6769 and 0.6691
Trading analysis offered by RobotFX and Flex EA.
Source #RobotFX Team
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