NZD/USD to see considerable gains toward 0.78 as RBNZ signals policy tightening – CE

FXStreet Insights Team FXStreet

The Reserve Bank of New Zealand sounded more optimistic at May’s meeting and signalled that it will start to hike rates in the second half of next year. The kiwi stands out surging above 0.73 – analysts at Capital Economics expect the NZD/USD pair to continue inching higher in the coming months.

RBNZ is signalling that monetary policy will be tightened before long

“The RBNZ kept policy settings unchanged at today’s meeting. However, the statement sounded more optimistic. The Monetary Policy Committee noted that activity remained “uneven” and argued that it had evolved broadly in line with the forecasts from February. However, the MPC noted that it now had greater confidence in the outlook given the rapid vaccine rollout overseas.”

“The Bank continued to downplay the marked slowdown in its bond purchases, arguing that it largely reflects lower issuance of government bonds. The Bank noted that the reduction in bond issuance means a lower scope of purchases within the limits of the indemnity provided by the Ministry of Finance. We suspect that a bigger factor behind slower purchases is the RBNZ’s self-imposed rule that the amount of bonds not held by the Bank shouldn’t fall below 20% of GDP. We estimate that it’s currently around 17% of GDP. As such, the slowdown in bond purchases may well continue.”

“The Bank is now more hawkish than we are as it believes that rates may need to be lifted to around 1.5% by end-2023 instead of the 1.0% level we have currently pencilled in.”

“With the RBNZ set to become one of the first central banks in advanced economies to hike rates, we think that the New Zealand dollar will continue to strengthen. Our end-2023 forecast for the NZD/USD pair is 0.78, from 0.73 today.”

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

AUD/USD hangs close to monthly lows, still defends 0.7100 ahead of Fed decision

AUD/USD retains its negative bias for the third straight day, defending 0.7100 while trading close to a monthly low in Wednesday's Asian session on Wednesday. The US Dollar stands firm near a two-week high as the anticipated Fed rate hike and oil-driven inflation fears continue to push US bond yields to a multi-year high. Furthermore, escalating Middle East tensions benefit the safe-haven buck and weigh on the risk-sensitive Aussie.

USD/JPY holds firm above 155.00, awaits Fed policy announcements

USD/JPY climbs to a fresh one-week high above 155.00 in the Asian session on Wednesday amid a bullish US Dollar. Oil-driven inflation fears, along with the anticipated Fed rate hike, continue to support surging US bond yields. Moreover, rising US-Iran tensions underpin the USD's reserve currency status. The pair, however, remains below the mid-155.00s as bulls seem hesitant ahead of the Fed decision later today and the BoJ meeting, starting on Thursday.

Gold traders seem noncommittal below $4,350; eyes Fed rate decision

Gold clings to modest intraday gains through the first half of the European session, albeit it lacks follow-through buying and remains below $4,350. The US Dollar eases from a two-week high amid some profit-taking, offering support to the commodity. Traders, however, seem hesitant to place aggressive directional bets and opt to wait on the sidelines heading into the key central bank event risk.

Cardano's bearish breakout warns of a 15% downside risk

Cardano (ADA) hovers around $0.1900 at press time on Wednesday after a 6% decline the previous day, breaking below a crucial support level. Declining on-chain activity across the Cardano ecosystem, with reduced transaction count and Real Economic Value (REV), suggests waning user demand.

Fed decision in focus

Starting with the most important, the Fed decision. Heading into the event, data showed a rather punchy US August jobs report, which, you will likely recall, triggered a hawkish Fed rate repricing in rates markets. However, the recent US August CPI print mattered more.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.