NZD/USD forecast as RBNZ kicks off quantitative tightening

The NZD/USD pair rose slightly on Wednesday morning after the Reserve Bank of New Zealand (RBNZ) delivered its interest rate decision. It is trading at 0.6761, which is the highest it has been since January 20th. It has risen by about 3.60% from the lowest level this year.

RBNZ interest rate decision

The New Zealand economy is doing well as demand from the country rises. Recent economic data shows that most sectors are performing well. For example, the unemployment rate has fallen to pre-pandemic levels while retail sales have kept rising.

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At the same time, the manufacturing and services sectors are doing great as evidenced by the recent PMI numbers. The situation will become much better when the country reopens its borders in the coming weeks. However, like in most countries, inflationary pressures remain in New Zealand as the cost of energy rises.

The RBNZ concluded its meeting on Wednesday morning and delivered a hawkish decision. It decided to raise interest rate for the third straight month. Therefore, the headline rate has moved to 1%, the highest level since the pandemic started.

Another notable statement was on the bank’s quantitative easing program (QE). In the statement, the bank said that it will start quantitative tightening (QT) by gradually reducing the holdings of its Large Scale Asset Purchase (LSAP) program. It will achieve that through bond maturities and managed sales. On inflation, the bank said:

“The near-term rise in inflation is accentuated by higher oil prices, rising transport costs, and the impact of supply shortfalls. These immediate relative price movements risk generating more generalized price rises, especially given the current domestic capacity constraints.”

The RBNZ decision was hawkish but the movement of the RBNZpair was a bit mild. That was because the decision was in line with what analysts were expecting.

NZD/USD forecast

The four-hour chart shows that the NZD/USD pair has been in a strong bullish trend in the past few weeks. It has moved from the YTD low of 0.6527 to today’s high of 0.6761. Along the way, the pair has also moved above the 61.8% Fibonacci retracement level. It has also risen above the 25-day and 50-day moving averages. 

Therefore, there is a likelihood that the pair will keep rising as bulls target the next key resistance level at 0.6800.