New Zealand Dollar Outlook: RBNZ Catapults NZD/USD on Possible 2H 2022 OCR Hike

Reserve Bank of New Zealand leaves Overnight Cash Rate at 0.25%, as expected LSAP and FLP programmes held steady as economic outlook still uncertain NZD/USD surges to the upside following the RBNZ policy statement

The Reserve Bank of New Zealand (RBNZ) kept its Overnight Cash Rate (OCR) steady at 0.25% at its May meeting. NZD/USD jolted higher following the decision crossing the wires as traders keyed in on the underlying statement. Although the decision was in line with the consensus forecast, the central bank appears to be growing less dovish, with the OCR seen rising in Q2 of next year.

Outside of its primary policy tool, the central bank’s supplementary policy instruments, the Large Scale Asset Purchase Programme (LSAP) and the Funding-For-Lending Programme (FLP) were also unchanged. The LSAP was maintained at N$100 billion, although it projects not hitting that limit. It is important to note that it is indeed a limit, not a target. While the FLP was extended, both programmes were initiated to combat the economic effects of the ongoing Covid pandemic and have, so far, appeared effective at their intended objective. Regarding closely watched home prices, the RBNZ statement shows an easing in upward pressure.

The updated economic outlook was largely in line with February projections. Annual growth is seen at 3.9% through late 2022. Better-than- expected labor data was cited in the RBNZ’s projections, with Q1 unemployment falling to 4.7% from 4.9% in the prior quarter and wage rates increasing to 1.6%. Q2 labor market data will cross the wires in early August. Inflation has also beat expectations as of late, with the Consumers Price Index (CPI) standing at +1.5% in Q1.

Still, the statement cautions the ongoing pandemic as a major uncertainty to the forecast. Overall, the RBNZ’s policy is largely unchanged at face value, but improving economic conditions have pushed the central bank’s tone to a less dovish one from before. The New Zealand Dollar may benefit from this if the Covid situation continues to improve, which would leave policy on a path to tightening.

NZD/USD TECHNICAL OUTLOOK

The New Zealand Dollar’s technical posture has strengthened considerably versus the US Dollar, with the currency pair overtaking trendline resistance, formerly support. Decisively overtaking the trendline now puts the early May multi-month high of 0.7305 in focus. The trendline will likely serve as support on the next downside move. The MACD appears to be gearing up for a potential break above its signal line, which constitutes a bullish signal. Moreover, the Relative Strength Index (RSI) is rising from its neutral 50 mark.

NZD/USD DAILY CHART

AUD/USD Remains Fragile as China Pressures Speculation in Iron Ore, Copper

Asia-Pacific stocks may have trouble extending gains seen on Tuesday after Wall Street moved lower during the New York session. Technology stocks made small gains, but the S&P 500 and Dow Jones Industrial Average (DJIA) closed in the red, losing 0.21% and 0.24%, respectively. Investors were met with several rounds of less-than-stellar economic activity before the opening bell.

Treasury yields resumed a move lower following strong market demand in the 2-year note auction. The auction’s bid-to-cover ratio – used to measure demand strength – came across at 2.74. The benchmark 10-year yield fell to a multi-week low as the yield curve flattened. The US Dollar joined the downside move in yields, with the DXY index giving up 0.20% following the NY closing bell.

Inflation concerns are also easing, which is helping to alleviate woes among bond traders. Federal Reserve Vice Chair Richard Clarida spoke to Yahoo Finance Tuesday on inflation, stating “that increase (CPI) certainly caught mine and others’ attention.” Mr. Clarida went on to repeat calls from his colleagues that the recent increase in inflation will be largely transitory.

Today’s rate decision from the Reserve Bank of New Zealand (RBNZ) will likely be the most prevalent sentiment driver during the APAC session. Traders will key in on the RBNZ’s policy statement, which will include an updated economic forecast. The New Zealand economy’s resilience since the latest policy update may see an upgrade to the growth outlook, which could bolster calls for a near-term rate hike.

The consensus forecast sees the RBNZ leaving its Overnight Cash Rate (OCR) standing firm at 0.25%. While economic activity has impressed analysts in recent months resulting in upward policy outlook revisions, a surprise rate hike at this meeting is very unlikely given the ongoing uncertainty around Covid. In a recent report, New Zealand Institute of Economic Research Shadow Board member Stephen Toplis stated:

“Tactically, the RBNZ will not want to scare the horses, but its objectives are close to being met, so the need for the current degree of stimulus to be maintained is waning rapidly.”

Earlier this morning, New Zealand reported its April trade data, with exports and imports crossing the wires at N$5.37 billion and N$4.98 billion, respectively. Outside of New Zealand, Australia will see the April Westpac Leading Index and construction work done for the first-quarter drop.

Elsewhere, Japan’s coincident index is due out.

An interruption to rising metal prices has likely added to overhead pressure on the Australian Dollar, with iron ore — one of Australia’s largest exports – falling over 20%. Commodity traders are concerned over recent actions taken by China to tamp down on speculative asset bubbles. The People’s Bank of China (PBOC) has quietly been reducing credit in the markets as it attempts to balance concerns over speculation amid a still- fragile economy. While the global recovery narrative remains supportive for metals, a cautious approach for speculative traders is warranted, with prices already at multi-year highs.

IRON ORE VERSUS COPPER DAILY CHART

AUD/USD TECHNICAL BREAKDOWN

AUD/USD made an intraday move above its 20-day Simple Moving Average (SMA) but was turned around and now trades back at the 0.7750 level, a former area of resistance seen through early to mid-April. That said, the 20-day SMA appears to be key to overcoming before moving higher. Alternatively, the supportive 50-day SMA lies to the downside near 0.7713. Further consolidation between the two key SMAs may continue in the near term.

AUD/USD DAILY CHART

Gold Price Forecast: XAU/USD May Rise Post RBNZ as Fedspeak Remains Dovish

Gold prices extended April’s bounce as Treasury yields declined RBNZ seems to be fueling USD weakness, pushing XAU/USD up Gold may rise towards the 61.8% Fibonacci retracement level

Anti-fiat gold prices charged higher over the past 24 hours, capitalizing on a combination of falling longer-term Treasury rates, a weaker US Dollar and a drop in Bitcoin. There has been rising interest in the yellow metal’s increasingly inverse relationship with the latter. But, it seems that the focus for XAU/USD on Tuesday was predominantly on US economic data and Fedspeak.

A worse-than-expected consumer confidence report further cooled Fed tapering expectations. Vice Chair Richard Clarida also spoke to Yahoo Finance, talking about inflation. He noted that while there have been rising concerns about elevated CPI, the central bank continues to see these forces as transitory. There was also strong demand at a 2-year Treasury note auction, consequentially pulling yields lower.

The non-interest-bearing yellow metal tends to thrive in an environment where returns on cash or fixed income investments are depressed. Gold’s ascent since April has been occurring alongside fading 2022 Fed rate hike bets. That also means that a key risk for XAU/USD down the road is when the central bank inevitably begins to push for tapering monthly asset purchases and raising rates. For now, gold may rise. The yellow metal climbed during Wednesday’s Asia-Pacific trading session, capitalizing on more weakness in the US Dollar. This seemed to be due to the RBNZ rate decision, where hints of a rate hike next year increased demand for the New Zealand Dollar at the cost of the Greenback. Dovish commentary from the Fed may keep gold’s momentum going during the Wall Street session

GOLD TECHNICAL ANALYSIS

Gold confirmed the breakout above the key 1863 – 1875 resistance zone, exposing the 61.8% Fibonacci retracement level at 1923 on the daily chart below. Guiding XAU/USD higher seems to be rising support from March as prices pushed above the falling trendline from August. Taking out the 61.8% level would subsequently expose the 1949 – 1965 resistance zone from November and December.

XAU/USD DAILY CHART

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