- NZD Soars on Hawkish RBNZ Pivot
- ECB Doves Raises EUR/NZD Downside Risk
- Overcooked CAD Leaves Room for NZD/CAD Upside
NZD: Another hawkish pivot from a G10 central bank, this time from the RBNZ who join the BoC and Norges Bank. While we had anticipated a hawkish outcome, the RBNZ had still managed to provide a hawkish surprise having signalled the possibility that they could raise the OCR by mid-late 2022 with a 25bps rate hike called for September 2022 and a further 100bps worth of hikes by December 2023. In turn, this hawkish stance from the RBNZ is likely to keep NZD on the front foot going forward. Reminder, the BoC hawkish pivot led to sizeable gains for the Canadian Dollar in the following ahead.
RBNZ OCR PROJECTION
NZD/USD: Taking a look at the chart, NZD/USD has backed off key resistance at 0.7314, which coincides with the January 6th peak. Following the RBNZ’s hawkish surprise, there is scope for further gains in the Kiwi, raising the risk of a topside break of resistance. Should this take place, this leaves room for the pair to make a push towards the YTD peak, given that there is little in the way of notable resistance above 0.7314. Momentum studies (RSI) remain positive for the pair and thus setbacks are likely to be supported from 0.7260-65 and 0.7200 below.
NZD/USD Chart: Daily Time Frame
EUR / NZD: While the cross may have already seen a sharp pullback, risks remain for an extended move lower. The RBNZ is now sitting on the hawkish side of the spectrum relative to the majority of G10 central banks. Meanwhile, the ECB doves have been out in force to talk down the possibility of changes to PEPP purchases for Q3 (in other words tapering PEPP purchases) as we head towards a critical meeting in June.
Recent ECB commentary
- ECB’s Panetta: The conditions that we see today do not justify reducing the pace of purchases, and a discussion above phasing out the PEPP is still clearly premature.
- ECB’s Villeroy: Any hypothesis of a reduction of purchases partly for Q3 or the following quarters is purely speculative.
- ECB’s Stournaras: Sees no reason to change the pace of PEPP purchase programme.
In the meantime, further ECB commentary will be key to watch as it will shape expectations going into the June 10th meeting and with ECB doves noting that PEPP purchase changes are not needed at present, the uptrend in the Euro has come to a halt.
On the technical front, the cross is testing trendline support, should EUR/NZD close below here, this likely confirms that the cross can extend lower where the next downside target would be at 1.6600 and 1.6580. On the longer term, the monetary policy divergence theme could see a move to 1.62-1.63.
EUR/NZD Chart: Daily Time Frame
NZD / CAD: A strong bounce from October 2020 lows, NZD/CAD appears to be on course for a move to the 0.89 handle. As I have said previously on the Canadian Dollar, the move looks to be overcooked and with positioning somewhat stretched on the long side, CAD is vulnerable to a squaring of positions. In turn, this bodes well for NZD/CAD to challenge higher levels.
NZD/CAD Chart: Daily Time Frame