The RBNZ said it now “had time for contemplation” after raising interest rates, implying a potential wait-and-see stance. Meanwhile, the regulator’s Governor Adrian Orr remained hawkish, predicting a 2.5% rate by the end of 2023.
The next round of interest rate hikes is expected to occur in February 2022, in line with the New Zealand Central Bank’s estimates. However, given Orr’s statement that the RBNZ now “has time to reflect”, it is likely the RBNZ will revisit this topic at its April 2022 meeting. In any case, the Reserve Bank of New Zealand has the most aggressive policies among the world’s major central banks. From the country’s epidemiological state (85% of the population is completely vaccinated) to the growth of important macroeconomic indices, many fundamental elements contribute to this.
Notably, New Zealand’s unemployment rate fell to 3.4% in the third quarter of this year, the lowest in 13 years. Experts expected 3.9 percent. The number of employees climbed by 2% quarterly, with a 0.4% rise expected. Annually, the component rose to 4.2 percent, with a 2.7 percent rise predicted. The proportion of economically active people climbed to 71.2 percent from 70.5 percent previously.
In terms of New Zealand inflation dynamics, we can also talk about records. In the third quarter of this year, the CPI grew 2.2% qoq. That was early in 2011, when the CPI was at a comparable level (quarterly). Annualized, the index was likewise positive at 4.9 percent. Both components of the release have been trending upward for multiple quarters, indicating rising pricing pressure.
If this trend continues in the fourth quarter, the RBNZ will likely hike rates by another 25 basis points in early 2022. Many analysts, judging by the final communiqué of today’s meeting, do not dispute this. According to the accompanying statement, the Central Bank must reduce stimulus measures to ensure price stability and maximum employment.
However, it is prudent to discuss the NZD/USD pair’s bearish chances today. As hawkish expectations build, so does the market’s anti-risk sentiment, making the US dollar a formidable and sneaky adversary. Traders are reacting to the collapse of the Turkish lira against the US dollar. This happened after Turkish President Recep Erdogan endorsed the Central Bank’s measures, which keep lowering interest rates despite rising inflation. The Turkish leader swore not to give in to “global financial acrobats” who want interest rates raised.
Erdogan has often urged the national Central Bank to reverse course and decrease rates. After another “hawkish” decision by the Central Bank’s governor in March, the president fired Agbal and replaced him with “dovish” Shahab Kavcioglu. He delivered on Erdogan’s wishes – the Central Bank cut the rate to 18% in September, 16% in October, and 15% in November. Meanwhile, inflation has reached 20%.
The Turkish lira’s “Black Monday” has impacted other currency pairs. Traders feared that shock treatment might end in other financial markets. Against this backdrop, the US dollar has become a popular safe-haven asset.
With the NZD/USD pair’s fundamentals so murky, sales should be approached with caution. The New Zealand dollar impulsively fell to the daily Bollinger Bands indicator’s bottom line (0.6890), but it couldn’t break through. Only short positions should be considered when consolidating below this support. In this instance, the range will show the next (primary) support level of 0.6800, which is the current year’s low.