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NZD outperforms on record RBNZ hike

The RBNZ increased its cash rate by 75bps to 4.25% which was expected by most economists. The overall communication was relatively hawkish with even talk of a 100bp hike.

New forecasts also raised the peak rate to 5.5% next year from a prior 4.1%. However, the bank sees the economy entering recession in mid-2023.

The clear recent surprise in Q3 underlying inflation (+7.2%) plus the rise in inflation expectations forced the biggest rate hike in the RBNZ’s history.

The NZD is outperforming this morning and could be breaking out of a bullish consolidation pattern.

Buyers will target the 200-day simple moving average around 0.63, though market forecasts are less sanguine about NZDUSD’s bullish prospects, with just a 30% chance being accorded to us seeing 0.63 NZDUSD over the next one-week period.

NZD outperforms on hawkish RBNZ hike

Still, given the RBNZ’s hawkish outlook, it appears NZD may yet build upon its 10.4% rise against the US dollar so far in Q4 2022, especially if markets conditions continue making for a softer US dollar environment on ramped up hopes for an eventual Fed pivot.

Note that the NZD is the best G10 performer against the US dollar since end-September, with the former also boasting a quarter-to-date advance against all G10 and major currencies.

Going forward, global risk dynamics and China news will be key drivers for the kiwi.

 

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