The New Zealand dollar has rebounded on Tuesday with strong gains. In the European session, NZD/USD is trading at 0.6151, up 0.83%.

Will RBNZ go all out?

The Reserve Bank of New Zealand has been tightening aggressively, delivering five straight 50-point hikes. The cash rate is currently at 3.5%, but this hasn’t achieved the goal of taming red-hot inflation. In the third quarter, CPI was almost unchanged, nudging lower to 7.2%, after a 7.3% gain in Q2. This was much higher than the RBNZ’s projection of 6.4%. With inflation expectations at 40-year highs, there is pressure on the bank to press the rate pedal to the floor.

The RBNZ will make its rate decision on Wednesday, with the markets expecting a 75-point hike, which would be the bank’s largest rate increase on record. Policy makers are confident that the economy can withstand a 75-point increase. The labour market remains tight, with unemployment at a near-record low of 3.3%, and the economy has recovered impressively from the Covid pandemic. There is clearly a risk that a jumbo rate hike will cause a harder landing than the RBNZ would like, but inflation remains priority number one. With the next rate decision not until late February, the RBNZ may want to make a loud splash at tomorrow’s meeting.

The recent US inflation report unleashed a wave of exuberance, sending equity markets higher and the US dollar on a nasty slide. Investors became more confident that Fed was close to a pivot in its aggressive policy and risk sentiment soared. The Fed has pushed back with Fed members delivering hawkish statements and projections, which has chilled risk appetite and stabilized the US dollar. Fed member Mary Daly weighed in on Monday, stating that inflation remained unacceptably high and projecting that the fed funds rate will peak at 4.75%-5.00%.

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NZD/USD Technical

• There is resistance at 0.6072 and 0.6202
• 0.5955 and 0.5871 are providing support

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A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

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• Source: https://www.marketpulse.com/20221122/nzd-dollar-bounces-back-ahead-of-rbnz-meet/