NZD/USD braces for a crash to 0.6100 after RBNZ rate hike

The NZD/USD exchange rate moved sideways on Wednesday morning after the first RBNZ meeting of the year. Kiwi was trading at 62 cents against the US dollar, a few points above last week’s low of 0.6193. It remains severely below the highest level this month.

RBNZ rate hike

The Reserve Bank of New Zealand had some balancing act to do as the country faces one of the biggest disasters in recent years. In its decision this week, the bank decided to hike interest rates by 0.50% as I had predicted in this report. This increase brought the headline interest rates to 4.75%, which is in par with the US.

The bank said that the rate hike was necessary since New Zealand’s inflation remains stubbornly high. It attributed these inflation trends to the strong tourism rebound after the government ended its quarantines last year. The statement added that:

“Higher interest rates are needed to ensure that inflationary pressures ease and employment returns to its maximum sustainable level.”

The RBNZ statement came at a time when the country’s economy is facing significant headwinds. Data published before the meeting showed that exports dropped to $5.7 billion in January while imports jumped to over $7.4 billion. As a result, the trade deficit widened to over $1.9 billion. On Tuesday, data showd that the PPI input and output dropped to 0.5% and 0.9%, respectively.

Meanwhile, the government is dealing with the recent cyclone that left a few people dead and more others injured. 

The next key forex news will be the upcoming minutes of the first Federal Reserve meeting of the year. These minutes will provide more information about what to expect in the coming meetings now that inflation remains stubbornly high.

NZD/USD forecast

NZD/USD chart by TradingView

On Monday, I warned that the NZD had formed a double-top pattern on the daily chart. This pattern signaled that the pair was ripe for a bearish breakout. Turning to the four-hour chart, we see that it remains under intense pressure and below the key support at 0.6270. It has moved below the 25-day and 50-day moving averages.

The pair also remains slightly above the important support level at 0.6195, the lowest point this month and in January. Therefore, the pair will likely have a bearish breakout in the coming days as sellers target the next psychological level at 0.6100.