New Zealand's historic interest rate hike. How is the NZD reacting?

23.11.2022 09:18|Conotoxia Ltd Analyst Team

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The Reserve Bank of New Zealand raised the official cash rate (OCR) by 75 bps to 4.25% at its November meeting. As a result, the NZ interest rate rose to its highest level since January 2009. The RBNZ's decision was in line with market consensus.

Wednesday's hike was the largest rate hike in the history of the central bank, which appears to be continuing its efforts to curb high inflation ahead of the upcoming RBNZ hiatus. The next scheduled meeting will not take place until 2023. Today's hike decision was the ninth in a row, meaning the OCR rate has risen 400 bps since October 2021, the most aggressive tightening by the RBNZ since 1999, according to tradingeconomics.

RBNZ fights inflation

New Zealand's central bank board said core consumer price inflation is too high, employment is above sustainable levels and short-term inflation expectations have risen. The committee signaled that more rate hikes may be on the way, assuming the OCR peaks at 5.5% in September 2023. Policymakers mentioned that they are aware that the spending decisions of many households will be largely constrained by rising debt service costs. A reduction in aggregate demand is expected to cause a temporary decline in GDP of about 1 percentage point from 2023, according to the RBNZ's statement to the interest rate decision.

NZD highest since August 2022

The rate of the NZD/USD pair has been on the rise for six weeks, which seems to look like a better streak for the NZD since late 2020. This may also be due to the fact that interest rates in New Zealand may reach higher levels than in the United States. Additionally, the pace of hikes in the U.S. may already be lower, which, from an interest rate market perspective, may support the NZD exchange rate. Since the beginning of the month, the New Zealand dollar seems to have gained more than 6 percent against the US dollar. As a result, among the world's major currencies, the NZD is the strongest currency against the USD. In second place this month is the Japanese yen, with a strengthening of more than 5 percent.


Source: Conotoxia MT5, NZDUSD, Weekly


Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.21% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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