The Reserve Bank of New Zealand raised its Official Cash Rate (OCR) from 3.00% to 3.25% as expected by most market watchers. This is the 3rd straight rate hike and puts the OCR at its highest since Jan. 2009.
RBNZ’s Official Cash Rate since March 2007 (Source: ForexFactory)
The RBNZ’s official statement noted a considerable momentum in New Zealand’s economic expansion, and cited concerns of inflationary pressure.
RBNZ Gov. Graeme Wheeler explained: “By increasing the OCR as needed to keep future average inflation near the 2 percent target mid-point, the Bank is seeking to ensure that the economic expansion can be sustained.” (source: RBNZ statement)
Even though this was an expected rate hike, some believed that the previous 2 rate hikes left little room for another one in June. After all, in 2010, the 2 rate hikes to 3.00% was capped. However, this rate hike lifts the RBNZ to a higher level on the hawkish scale, and provides NZD fuel to appreciate further.
NZD/USD Signals Bullish Continuation. The 4H NZD/USD chart shows a pair that fell 400 pips in a month from the year’s high near 0.88 to about 0.84. The market was already consolidating ahead of the RBNZ policy announcement today, but confirmed the bullish outlook with the strong reaction. If on a subsequent decline, NZD/USD can stay north of 0.8550, the 2014-high will be exposed. In the near-term, the upside might be limited first to a resistance pivot just below 0.87.
AUS Jobs Data
Australia’s Bureau of Statistics (ABS) reported that in May, the economy shed 4.8K jobs. According to ForexFactory, economists had expected an increase of about 10.3K jobs. April’s reading was revised lower from 14.2K to 10.3K.
The unemployment rate remained at 5.8% in May. Economists had expected a rise to 5.9%.
This was a very poor set of jobs data from Australia, and puts pressure on the Australian Dollar especially against the New Zealand Dollar which is getting bids on the back of the RBNZ’s rate hike.
AUD/NZD Gets Dumped, and Breaks Trendline. The AUD/NZD has been rallying for about a month from 1.0648 to 1.1035. The reaction first to the RBNZ announcement brought the pair from 1.10 to about 1.09. Then the poor Australian jobs data extended the decline, breaking a rising trendline seen in the 4H chart below. This decline exposes the 1.0750 and 1.0650 support levels. Watching out for a pullback, if the 4H RSI can hold below 60, the bearish momentum has returned, otherwise, today’s reaction could simply be a bearish correction to a growing bullish trend in AUD/NZD. The market would have to have something fresh to go on fundamentally to trump today’s AUD-negative, and NZD-positive factors.
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