Kiwi rallies as RBNZ raised rates by 25bps to 3.00%

The Kiwi has rallied after the Reserve Bank of New Zealand raised rates by 25bps to 3.00% – This was in-line with market expectations.

Summary of RBNZ statement:

·         Increased the Official Cash Rate(OCR) by 25bps to 3.00%

·         Rate hike needed to keep future average inflation near 2% target

·         Raised GDP estimate to 3.5% from 3.3%

·         Confidence remains very high among businesses & households

·         High exchange rate remains a headwind to tradeables sector

·         Does not believe current level of NZD is sustainable

·         Mortgage lending restrictions on high LTV ratios are easing housing pressure

·         Speed of future rate hikes depends on data & assessment of inflation pressures

·         The extent that a high NZD leads to lower inflation will also be considered

Overall, the tone of the statement was slightly more upbeat and did little to suggest that future rate hikes would be on pause. As a result, the NZD has caught a bit across the board between 30-50 pips (at the time of this writing) and may be poised for further strength over the coming sessions. Technically, we will continue to monitor the key pivot at 0.8625, as a break above this level could elicit a move towards the positive reversal measured move objective and 2014 high around 0.8740/45.

*Below you will find the April and March statement comparison, with omissions Strikethrough (in grey) and additions bold(in blue). The remaining text in black has not changed from the prior statement.

Source: Reserve Bank of New Zealand, FOREX.com