The NZD/USD rate initially hit an intra-day high of 0.6902 just after it was announced that the Reserve Bank of New Zealand (RBNZ) decided to deliver a larger 50bps hike lifting the key policy rate to 1.50%. However, the kiwi has since given back all of those initial gains. Economists at MUFG Bank note that the 0.70 level is proving to be a tough nut to crack.

RBNZ meets expectations for faster rate hikes to fight inflation

“The RBNZ’s message that it will deliver quicker rate hikes in the near-term has also encouraged the market participants to scale back tightening further out. It could partially reflect expectations that more decisive action now to combat upside inflation risks will help to reduce the need for action further down the road. At the same time, the re-opening of New Zealand’s borders are expected to help ease labour supply constraints further out.”

“With RBNZ rate hike expectations well priced in, the NZD/USD will rely more on rising commodity prices to strengthen further.”

“Resistance at the 0.7000-level is proving to be a tough nut to crack.”