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New Zealand Dollar rises on tighter monetary policy

Today is a big day for central bankers and their policy statements. We also have Chair Powell testifying, which could bring some volatility to the US dollar crosses and equities markets. The mood is more Hawkish currently following the RBNZ and following the Nasdaq hitting 15,000 and a new all-time high yesterday.

Morning Brief

The Reserve Bank of New Zealand’s, Monetary Policy Committee (MPC), agreed to reduce the current stimulatory level of monetary settings in order to meet its consumer price and employment objectives over the medium term.

The RBNZ decided in their latest meeting to halt additional asset purchases under the Large-Scale Asset Purchase (LSAP) program by 23 July 2021. The Committee will keep the Official Cash Rate (OCR) at 0.25% and the Funding for Lending Programme unchanged.

In their report the RBNZ said that the global economic outlook continues to improve, providing ongoing price support for New Zealand’s export commodities. The main drag to the global economy is the COVID-19 variants and current restrictions needed to contain the disease. New Zealand’s aggregate economic activity is above its pre-COVID-19 level.

The more Hawkish monetary policy has given the New Zealand dollar a bid and across the board, the NZD is strongest at the London open. The Reserve Bank of Australia may not follow the RBNZ immediately but has hinted at the need for tapering in the near future. The next G-10 central bank likely to tighten further is the Bank of Canada, which will deliver its report and rate statement just after the US session opens today.

Sentiment on the ActivTrader platform shows that retail traders are currently bearish the New Zealand dollar and these traders are very likely to get squeezed out of their positions today.

The New Zealand dollar is in a consolidation zone and below the Ichimoku clouds, so for today, I am expecting a rise to test the upper range prices 0.7070-0.7090 and possibly the cloud resistance.

Just before the London session bell, the UK inflation data was released. The annual inflation rate in the UK increased to 2.5% in June of 2021 from 2.1% in May beating market forecasts of 2.2%. It is the highest inflation rate since August of 2008.

GBPUSD is higher today, but there are some serious levels of resistance as highlighted by the daily 20 and 50 exponential moving averages, which are both points lower. The swing high is the critical level for the bulls to get above and with a rising US dollar, this is looking less likely.

In the overnight session, the US dollar index had traded above the previous session's highs as Democrats in the United States Senate agreed on a budget reconciliation package after days of negotiating. The deal agrees on US spending of $3.5 trillion over the next ten years.

The bill is meant to cover many of the items left out of the bipartisan infrastructure package dubbed the American Jobs Plan, including healthcare, climate change, and housing.

The intraday chart for the US dollar index is showing the pullback into the London open has found support at the 20-period ema and assuming the testimony from Fed Chair Powell doesn’t throw a Dovish curveball later today, we could see the $93 handle get tested.

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