FX.co ★ NZD/USD. Hawkish signals, but vague prospects: RBNZ did not help the kiwi

The Reserve Bank of New Zealand last week raised the interest rate by 50 basis points at once. Most experts predicted a 25-point increase, so the kiwi shot up against the US currency, approaching the boundaries of the 69th figure. However, NZD/USD bulls failed to reverse the downward trend – on the same day, bears seized the initiative and the pair collapsed by almost 150 points. Today, the kiwi is already trading at the base of the 67th figure, preparing to storm the 0.6700 support level.

Following the results of the April meeting, the RBNZ not only raised the rate, but also announced further steps in this direction – however, with one significant caveat. Since October last year, when the consumer price index rose in New Zealand to almost 6%, the central bank has held four rounds of rate hikes. The accompanying statement of the April meeting indicated that the central bank agreed on the so-called "path of least resistance", the essence of which is to hold several rounds of a 50-point increase ("raise more now, not later"), after which to take a break. This approach was interpreted by the market in its own way as a sign of a slowdown in the process of tightening monetary policy. This is partly why the kiwi dropped sharply after taking off to the borders of the 69th figure. The RBNZ, by and large, has designated an approximate "final point" – at least within the framework of the current rate hike cycle. Thus, the central bank put pressure on the kiwi, despite the actual tightening of monetary policy.

In fairness, it must be admitted that even without this circumstance, there was practically no chance for NZD/USD bulls to reverse the downward trend (and there is not). The main locomotive of the downward shaft is the greenback, which is becoming more expensive due to the strengthening of anti-risk sentiment and the strengthening of hawkish expectations regarding the Federal Reserve's further actions. The US dollar index crossed the 100-point mark today (for the first time in the last two years!), reflecting the increased interest of traders in the US currency. Corrective growth of the NZD/USD pair and (especially) a trend reversal are possible only if the greenback weakens. Kiwi has no independent arguments for this, especially considering the market reaction to the hawkish results of the RBNZ meeting.

It should be noted that today many trading platforms of the world are closed – Catholics celebrate Easter Monday. As a rule, such "half-weekend" days are characterized by low liquidity and weak volatility. But this year the situation is radically different: the US dollar is gaining momentum throughout the market, provoking very significant price fluctuations. Over the past two weeks, the greenback has received strong support from the Fed. In particular, the week before last, the Fed minutes were published, according to which the central bank is ready to raise the interest rate by 50 points "at one or more meetings." Subsequent comments by representatives of the Open Market Committee increased the likelihood of this scenario. Almost all of them were in favor of a 50-point increase at the May meeting, and many of them did not rule out a June increase by a similar amount. Against the background of such prospects, the yield of treasuries has increased significantly, which has benefited the dollar. In particular, the yield on 10-year US government bonds rose to 2.840%. This is a multi-year high: the last time the yield was at this level was in November 2018.

Of course, the NZD/USD pair is also under pressure from a declining craving for risk. The protracted (and so far fruitless) negotiations between Russia and Ukraine are worrying investors: the "specter of stagflation" is hanging not only over the European region. In addition, traders are also concerned about the "Taiwan issue", especially in the context of China's military exercises in close proximity to the island. Earlier, China expressed a strong protest against the visit of American congressmen to Taiwan. All these factors have reduced interest in the high-risk kiwi. While the safe US dollar – on the contrary – began to gain momentum again. At the moment, there are no prerequisites for a trend reversal or for a large-scale correction.

The technical picture also indicates the further development of the downward trend of NZD/USD. It is advisable to use any upward pullbacks on the pair to open short positions. The pair on the daily chart is located on the lower line of the Bollinger Bands indicator, as well as on the lower border of the Kumo cloud (0.6730). If the bears are able to settle below this target, we can consider short positions with the first target of 0.6700 and the main target of 0.6600 – the lower line of the Bollinger Bands indicator on the weekly chart.