NZD/USD: the RBNZ wants to accelerate its monetary tightening

The RBNZ boosts its dollar by opting for an acceleration of its monetary tightening

The New Zealand dollar jumped against the major currencies on Wednesday morning after the RBNZ decided to accelerate the pace of its monetary tightening.

The RBNZ unsurprisingly raised its official bank rate by 50 basis points to 2.0%, its highest level since 2016, but plans to step up its monetary tightening to cope with inflation, currently at 6 .9%, and provide more flexibility in the future given the highly uncertain global economic environment.

Central bank officials now expect the Bank Rate to peak at 3.95% in the third quarter of next year, well ahead of its February forecast of a peak at 3.35% in 2024, before declining as global demand rebalances.

This hawkish statement could allow the New Zealand dollar to extend its rebound against the greenback in the short term, but a major bullish reversal still seems unlikely. The greenback should continue to dominate the currency market given the equally rapid Fed rate hike, but also the risk aversion in the markets and the global economic slowdown.

NZD/USD daily price chart – key levels


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