On Thursday (October 14), the New Zealand dollar rose sharply against the U.S. dollar, hitting a three-week high. It is currently hovering above the 0.7030 area, boosted by the weakening of the U.S. dollar and expectations of interest rate hikes.
Multiple favorable factors helped the New Zealand dollar to continue the rebound from the 0.6910 support level after the US inflation data the previous day and the market rose for the second consecutive day on Thursday. At a time when the demand for the US dollar is weak, the stock market as a whole rises, and the continued risk appetite is favorable for risky currencies.
On Wednesday, the U.S. dollar appeared a typical "buy rumors, sell the facts" market. After the release of the US inflation data, it reversed the upward trend of this week to a 13-month high. The overall US CPI in September was actually 0.4%, an annual rate increase of 5.4%. The data was slightly higher than market expectations, but failed to stimulate dollar bulls.
Investors still seem to agree with the Fed’s inflationary rhetoric, as evidenced by the further decline in long-term U.S. Treasury yields. This is also another factor that suppressed the dollar's decline. Nevertheless, the expectation that the Fed will soon announce a reduction in the size of its debt purchases, as well as the expectation that the Fed may raise interest rates in advance, have helped limit the dollar's decline.
The minutes of the Fed's Federal Open Market Committee (FOMC) monetary policy meeting in September show that the Fed will continue to reduce bond purchases as planned later this year. In addition, more and more policy makers worry that inflation may continue, forcing investors to advance the possible interest rate hike from December 2022, which is already reflected in prices, to September 2022.
The strength of the New Zealand dollar is also supported by the lead of interest rate hikes by the Reserve Bank of New Zealand.
The Reserve Bank of New Zealand raised the official cash rate (OCR) by 25 basis points to 0.5% last Wednesday (October 6), in line with market expectations. The outside world generally believes that the interest rate hike is aimed at curbing the rise in inflation and cooling the overheated economy.
This is also the bank's first rate hike in seven years. The Reserve Bank of New Zealand is expected to raise interest rates by another 25 basis points to 0.75% in November, and will raise interest rates three more times next year. By August, the official cash rate will reach 1.5%, which is second to none among the world's major central banks.
However, Geoff Bascand, vice chairman of the Federal Reserve Bank of New Zealand, expressed concern on Thursday: New Zealand’s rapid economic recovery still faces risks from the new crown virus and “unsustainable housing prices”, so the financial sector needs to avoid taking too much. Debt.
Baskander said that the strong balance sheets of households, banks and the government have allowed the country to recover strongly and need to be protected.
He said in a speech: "We are still in a state of high uncertainty; the new crown epidemic still poses a risk to economic recovery, and we assess that housing prices are at an unsustainable level."
"We will take action when needed to ensure that the balance sheets of regulated financial institutions can withstand future pressures from the economy and financial system and avoid excessive exposure to vulnerabilities."
The upper resistance pays attention to 0.7052, 0.7081, 0.7103, and the lower support pays attention to 0.7000, 0.6979, 0.6934.
(New Zealand dollar against the US dollar daily chart)
At 21:24 GMT+8, the New Zealand dollar was quoted at 0.7033 against the U.S. dollar.
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