The New Zealand dollar jumped by 100 points against the US dollar today, reacting to the results of the next meeting of the Reserve Bank of New Zealand. And although the central bank left all the parameters of monetary policy in the same form, it voiced quite hawkish rhetoric, which provided significant support to the kiwi. The US dollar, in turn, continues to be under the background pressure of many fundamental factors. Weak positions of the greenback made it possible for NZD/USD bulls to test the 73rd figure. The pair was last seen in this area almost two months ago - in early March. And taking into account the results of today's meeting of the RBNZ members, we can assume that the upward trend will continue in the medium term.
Take note that the RBNZ is able to surprise, although this quality does not characterize the central bank on the positive side: a weak level of communication with the market is fraught with sad consequences. Here you can recall the events of the summer of 2019, when the RBNZ, without any clear warning, cut the rate by 50 basis points. The echoes of this decision were felt far beyond the borders of New Zealand – many analysts suggested that the central banks of other leading countries would follow this example and resort to aggressive monetary easing measures. At that time, the financial world felt the negative consequences of the trade war between the United States and China: global economic activity continued to weaken, and the New Zealand central bank became one of the first among the central banks of the leading countries of the world who decided to ease monetary policy. Then, as you know, the coronavirus crisis broke out, against the background of which the RBNZ lowered the interest rate to 0.25%.
Now the situation is mirrored: the RBNZ can become a pioneer – only with a + sign. Today, RBNZ Governor Adrian Orr said that the interest rate could be increased as early as the middle of next year. The stimulus program will be curtailed even before the tightening of monetary policy – according to Orr, the asset purchase program will run until June 2022. Such prospects inspired NZD/USD bulls: the pair jumped by a hundred points in just a few hours and updated two-month price highs.
The RBNZ's hawkish intentions will provide background support to the kiwi in the medium term. But many other fundamental factors also support the further development of the upward trend. In particular, the kiwi side has key macroeconomic reports.
According to the latest data, the unemployment rate in the island state fell in the first quarter of this year to 4.7%, while, according to general forecasts, this indicator should have remained at the fourth quarter's level, that is, at 4.9%. De facto unemployment has fallen for the second consecutive quarter, and at a faster pace. The employment growth rate increased by 0.6% on a quarterly basis (with a growth forecast of 0.3%) and by 0.3% on an annual basis (with a decline forecast of -0.1%). Both indicators came out in the green zone, exceeding the forecast values. The share of the economically active population in the country has increased to 70.4%. The level of remuneration in the first quarter increased by 0.4% (including paid overtime) and by 0.5% (excluding overtime). It is also necessary to recall that the data published in April on the growth of inflation in New Zealand also supported the kiwi. A positive trend was recorded in the first quarter of this year: in quarterly terms, the consumer price index increased to 0.8% (from the previous value of 0.6%), in annual terms – to 1.5% (with a forecast of growth to 1.4%).
Another factor in favor of the kiwi is the epidemiological situation in New Zealand. For example, yesterday, only two carriers of the coronavirus were detected in a 5-million-strong country. According to the Ministry of Health, both patients arrived in New Zealand from Japan – the infection was detected during the quarantine in special institutions. While cases of local spread of infection were not recorded. In total, there are currently only 22 active cases of coronavirus infection in New Zealand.
Thus, all of the aforementioned factors add up in favor of the New Zealand dollar. The technical side of the issue also indicates that long positions on the NZD/USD pair are prioritized. On all the higher timeframes (except for the monthly chart), the pair is located on the upper line of the Bollinger Bands indicator and above all the lines of the Ichimoku indicator, which formed a bullish Parade of Lines signal on D1 and W1. The resistance level (the target of the upward movement) is the upper line of the Bollinger Bands indicator on the weekly chart, which corresponds to the level of 0.7350.
