The New Zealand dollar has reversed directions on Thursday and is sharply lower. In the North American session, NZD/USD is trading at 0.6418, down a massive 1.90% on the day.
U.S. Dollar Rebounds After FOMC
The New Zealand dollar is showing plenty of volatility. NZD/USD surged 1.76% on Wednesday but has coughed up all of those gains today. The U.S. dollar lost a step after the FOMC meeting, even though the Fed hiked rates by 0.50%, which was the largest rate increase in 20 years.
The Fed continues to show a hawkish stance. The rate-hike cycle will remain aggressive, with Fed Chair Jerome Powell signalling at yesterday’s meeting that the Fed will deliver further 0.50% hikes at the June and July meetings. Yet, the markets chose to focus on Powell’s statement that a 0.75% hike was not being “actively considered.” Although Powell didn’t rule out such a move, the markets were nonetheless elated, sending equities up and the U.S. dollar broadly lower. It didn’t take long for the U.S. dollar to recover, particularly against the New Zealand and Australian dollars.
Perhaps as significant as the Fed’s rate hike was its announcement to implement quantitative tightening, after years of quantitative easing as part of its accommodative policy. Starting in June, the Fed will sell $45 billion per month in assets, which will climb to $95 billion per month in September. The Fed is betting that it can curb inflation through rate hikes and a balance sheet reduction, while ensuring a soft landing for the economy and avoiding a recession.
The New Zealand labour market remains robust, as confirmed by the Q1 employment report. The unemployment rate remained at a record low of 3.2%, matching expectations. Significantly, wage growth, which climbed to 3.1% YoY, its highest level since 2008. The surge in wage growth is sure to raise pressure on the central bank to deliver another 0.50% rate hike at the May 25th meeting, which would bring the Official Cash Rate to 2.0%.
NZD/USD Technical
- 0.6391 is under strong pressure in support, as NZD/USD is sharply lower. Below, there is support at 0.6325
- There is resistance at 0.6519 and 0.6648
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.
