RBNZ, NZD, AUD Analysis:
- RBNZ hikes and foresees rates rising higher for longer than anticipated
- Risk-associated AUD surges despite geopolitical uncertainty, Russian sanctions
- Large speculators’ NZD and AUD positioning remains net-short
Reserve Bank of New Zealand Raised the OCR Rate to 1.00%
The Reserve Bank of New Zealand (RBNZ) voted to raise the overnight cash rate (OCR) from 0.75% to 1.00%. While there was some debate on whether to raise by 25 or 50 basis points, markets actually responded to the fact that the Bank raised it’s view on the terminal rate, the rate associated with full employment, from 2.5% to 3.35% by year end 2024.
The greater anticipated number of future rate hikes elevated the value of the Kiwi dollar against the US dollar and other G10 counterparts. The Bank also looks to wind down its bond holdings while choosing not to reinvest proceeds.
It remains to be seen whether the recent RBNZ revelations provided the necessary impetus to reverse the prior downtrend in NZD/USD however, the prospect of higher rates for a longer period should at the very least support NZD.
Key Technical Levels: NZD/USD
NZD/USD continues to rise within an ascending channel, much like it did at the end of 2021 and beginning of 2022 before moving lower. As price action approaches the upper bound of the channel and heads towards oversold territory on the RSI, it will be interesting to see whether the RBNZ’s interest rate projections prove to be enough to break above the channel. A close above 0.6791 would highlight the weekly zone of resistance between 0.6900 to 0.6940.
Should the channel hold and prices pullback, the 0.6700 level becomes the decision point for a potential bullish continuation (bounce off 0.6700) or a breakdown, towards 0.6592 and the yearly low.
NZD/USD Daily Chart
Source: IG, prepared by Richard Snow
NZD Positioning
Speculative positioning via the CFTC’s commitment of traders data highlights where the ‘smart money’ is positioned. Overall, large speculators are sizably net short although the recent uptick in longs should be monitored in case it presets the early stages of a sentiment reversal.
CoT Data: New Zealand dollar shorts, longs and NZD/USD
Source: Refintiv, CFTC data, prepared by Richard Snow
The Risk-Correlated Australian Dollar Continues to Rise
Jitters and general uncertainty has appeared in global equity markets and gold has risen sharply along with oil. These are typical in times of geopolitical uncertainty however, the risk-associated Australian dollar continues to appreciate unabated.
Recent AUD performance has been rather surprising, particularly when compared to the Japanese Yen, a currency typically viewed as a safe-haven in turbulent times. Strong Australian earnings from BHP and Rio Tinto’s recent record profit and dividend payout on the back of higher iron ore prices along with strong Chinese demand, could have a part to play in suporting the Aussie dollar.
Key Technical Levels: AUD/JPY
The Aussie dollar has impressed over the last 48 hours, rising strongly against the US dollar and Japanese Yen. AUD/JPY accelerated above 82.87 with ease, then the 61.8% Fib and now approaches 83.75.
However, AUD remains vulnerable to further potential escalations in Ukraine and should the FX space start to price in any substantial risk, AUD is usually in the firing line. Nearest support rests at 82.87.
AUD/JPY Daily Chart
Source: IG, prepared by Richard Snow
AUD Positioning
Similarly to NZD, AUD is heavily net short when looking at how large speculators are positioned. This could weigh on subsequent AUD upside momentum.
CoT Data: Australian dollar shorts, longs and AUD/USD
Source: Refintiv, CFTC data, prepared by Richard Snow
— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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