The Kiwi dollar rallied against the greenback yesterday after the Reserve Bank of New Zealand stunned the market by announcing a rate hike of 50 basis points. The US ADP nonfarm employment change and trade deficit data also missed estimates. This fueled the NZD/USD pair’s rally. Overall, the NZD/USD pair rallied from a low of 0.6285 to a high of 0.6380 in the past 24 hours.
In a surprise move, the Reserve Bank of New Zealand’s (RBNZ) monetary policy committee lifted the benchmark interest rate to 5.25% from 4.75% to tame inflation. Economists had anticipated only a 25bps rate hike, given the gloomy global economic scenario.
In its statement accompanying the policy announcement, the central bank argued that the rate hike was supported by the committee, which viewed the current inflation level as very “high and persistent.” At the end of the December 2022 quarter, the country’s consumer price index stood at 7.20%, around the historic highs recorded in October.
The policy committee also opined that New Zealand’s employment is higher than its sustainable level, stressing its intention to push inflation lower to its target level of 1-3%.
In the medium term, the committee expects economic activity to be aided by rebuilding initiatives. Also, the rise in demand for resources is anticipated to fuel inflationary pressure more than projected in the policy statement issued in February.
According to the data published by Automatic Data Processing, US private sector (non-farm) payrolls rose by 145,000 in March following an addition of 261,000 jobs in the previous month but missed forecasts of 208,000. The report indicates that the labor market is cooling as consumer demand slows and the cost of borrowing is going up.
The services sector added 75,000 jobs. Specifically, leisure and hospitality added 98,000 jobs, while trade/transportation and utilities added 56,000 jobs. Education/health services added 17,000 jobs. However, financial activities lost 51,000 jobs. Likewise, the professional and business services industry lost 46,000 jobs. Also, the information sector lost 7,000 jobs.
In the meantime, the goods-producing sector added 70,000 jobs. Specifically, the construction and mining sectors added 53,000 and 47,000 jobs, respectively. Manufacturing lost 30,000 jobs.
While large enterprises added 10,000 jobs, medium-sized ones created 33,000. Small firms saw their payroll increase by 101,000.
According to the US Bureau of Economic Analysis, the country’s trade deficit widened to $70.50 billion in February from $68.70 billion in January. Economists had anticipated only a slight increase in the trade deficit to $68.90 billion.
Exports fell by $6.90 billion in February to $251.20 billion. Imports declined by $5 billion in the same period, to $321.70 billion.
While the goods deficit rose by $2.70 billion to $93 billion, the services surplus inched up by $0.80 billion to $22.40 billion.
In particular, exports of goods declined by $8.50 billion to $169.20 billion in February. Also, exports of services rose by $1.70 billion to $82 billion in the same period.
Imports of goods decreased by $5.8 billion to $262.2 billion in February. Likewise, imports of services inched up $0.8 billion to $59.5 billion in February.
The higher-than-anticipated rate hike by the RBNZ and weak US economic data is expected to keep the NZD/USD pair slightly bullish in the short term.
The historical price chart indicates that the NZD/USD pair is ascending after testing the support at 0.6285. The next resistance is anticipated only near 0.6500. Additionally, the currency pair is trading above its 50-day moving average, while the MACD indicator is showing a positive reading. Therefore, we anticipate the NZD/USD pair to remain in an uptrend in the days ahead.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
