Daily Market Recap – NZDUSD Kiwi rises sharply after RBNZ announcement

The Reserve Bank of New Zealand announced Wednesday that it would maintain current stimulative monetary settings until its inflation and employment targets are met.

However, the central bank said its official interest rate could begin to rise in the second half of next year. Following the announcement, the New Zealand dollar jumped about 1% to $0.7305, strengthening further from levels below $0.72 seen earlier this week.

On the greenback front, Tuesday's U.S. economic data were mostly negative for the dollar. The Conference Board's U.S. consumer confidence index for May fell -0.3 to 117.2, which was below expectations of 118.8. In addition, April's new home sales fell 5.9% monthly to 863,000, which was weaker than expectations of a decline to 950,000.

The Fed's comments on Tuesday were dovish for Fed policy and bearish for the dollar. Richmond Fed President Barkin said that he is paying attention to inflation expectations, and that “they have not yet risen above the target.” Similarly, Chicago Fed President Evans said, “It is important to note that the recent increase in inflation does not appear to be a precursor to a persistent move toward undesirably high levels of inflation.”

The yield on the 10-year T-note fell to a two-week low of 1.559 percent on Tuesday, weakening the interest rate differential and being negative for the dollar.

After the Reserve Bank of New Zealand meeting, the kiwi dollar jumped and tested resistance at 0.7308. Watch for the close tonight, if the New Zealand currency closes above this level, it could reach the yearly high at 0.7465.

(Chart Source: Tradingview 26.05.2021)

The short-term trend is back to bullish above the 13 and 34 period ascending moving averages after the horizontal consolidation in effect since April. The medium-term trend is also positive with a rising 200 period moving average. On the flip side, a failure on 0.7308 would extend the sideways drift with support at 0.7116.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.