NZD/USD Forex Technical Analysis – Increasing Upside Momentum on Rising RBNZ Rate Hike Expectations

The New Zealand Dollar is edging higher on Wednesday as a second session of Wall Street gains calmed risk sentiment, driving up demand for the commodity-linked currency. The Kiwi also benefited from wagers on ever-higher domestic interest rates.

At 03:30 GMT, the NZD/USD is trading .5699, up 0.0012 or +0.20%.

Traders increased bets on another round of aggressive rate hikes by the Reserve Bank of New Zealand (RBNZ) as financial market traders sharply revised up the expected tightening path of the central bank following Tuesday’s shockingly high reading on domestic consumer inflation.

Financial Markets Support Hawkish RBNZ

Two-year swap rates are now up 27 basis points for the week so far at a 14-year high of 5.19% as investors pushed up the likely peak for cash rates (OCR) by more than a quarter-point to 5.33%, Reuters reported.

Rate Hike Expectations Rise

Analysts at Westpac now see rates topping out at 5%, rather than 4.5%, and tip a hike of 75 basis points at the RBNZ’s next meeting in late November.

Other hawks chimed in as well.

“We now expect the RBNZ to lift the OCR by 75bp at the November meeting, previously 50bp, and 50bp in February 2023, previously 25bp, taking the OCR to 4.75%,” said Andrew Boak, an economist at Goldman Sachs.

He furthered added, “Risks are skewed towards more increases in 1H2023.”

Additionally, Jerome Kerr, chief economist at Kiwibank, lifted his peak for rates all the way to 5%, from 4% previously, so alarming was the news on consumer price inflation.

In our opinion, the CPI report on Tuesday was too far above expectations to ignore. It indicates inflation could be higher for longer than previously expected. This leads us to believe the RBNZ is going to have to be more aggressive into early 2023.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher.

A trade through .5814 will change the main trend to up. A move through .5512 will signal a resumption of the downtrend.

The minor range is .5814 to .5512. The NZD/USD is currently trading on the strong side of its pivot at .5663, making it support.

The short-term range is .6162 to .5512. If the trend changes to up then its pivot at .5837 will become the next target.

Daily Swing Chart Technical Forecast

Trader reaction to .5663 will determine the direction of the NZD/USD on Wednesday.

Bullish Scenario

A sustained move over .5663 will indicate the presence of buyers. Taking out Tuesday high at .5720 will indicate the buying is getting stronger. If this generates enough upside momentum then look for a surge into the main top at .5814, followed by the pivot at .5837.

Bearish Scenario

A sustained move under .5663 will signal the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into a new minor pivot at .5616. This is the last potential support before the .5512 main bottom.