The New Zealand dollar is sharply higher in the Thursday session. Currently, NZD/USD is trading at 0.7113, up 0.02% on the day.
RBNZ maintains rates, QE
There were no surprises from New Zealand’s central bank, which held the course at its monthly policy meeting. As expected, policymakers held the Overnight Cash Rate at 0.25%, a record low. The RBNZ added that if needed, it was prepared to lower rates even further. The bank kept its QE programme (LSAP) unchanged and noted that it will take “considerable time and patience” before it reaches its inflation and employment goals.
The tone of the RBNZ was unmistakably dovish, and there was little to differentiate this rate statement from the February statement. This made it somewhat surprising that the New Zealand dollar has soared one percent and easily crossed into 71-territory. The likely explanation is a technical move by the currency – the New Zealand dollar punched above its April 5th high of 0.7069 on stop-loss activity after the RBNZ rate decision. Once that line was breached, NZD had significant room to the upside and recorded strong gains.
Higher prices could force RBNZ to rethink policy
The well-respected NZIER Business Confidence survey pointed to a slight improvement in business confidence in Q1 of 2021. Based on the survey, NZIER projected that GDP would rise by about 2 per cent in the first quarter. The survey noted that cost pressures have been building up, which has led to higher prices. A red hot housing market led the government to implement measures to discourage speculators, but these measures will take time to affect the housing sector. If CPI also moves higher, the central bank will likely have to rethink its ultra-dovish policy and may have to consider raising interest rates.
- NZD/USD is putting pressure on resistance at 0.7144. This is followed by 0.7212, an important monthly resistance line
- There is support at 0.6998. Close by, we have support at 0.6961