Forex Market: NZD/USD rises to a three-week peak as RBNZ hikes rates for fifth time, provides more hawkish guidance

NZD/USD surged to a fresh three-week high on Wednesday after the Reserve Bank of New Zealand raised its official cash rate by 50 basis points to 2.0% at its May meeting, in line with market expectations. It has also been the fifth RBNZ rate hike in a row.

What bolstered the kiwi dollar was a more hawkish guidance on RBNZ’s future policy path. Policy makers signaled that the official cash rate might peak at a higher level than previously forecast in light of rising prices.

The RBNZ Board also said that a larger and earlier rate hike would diminish the risk of inflation becoming persistent and would provide more flexibility in the future amid the highly uncertain global economic environment.

“The Reserve Bank’s new track exceeded market pricing and that’s very unusual, that they would overshoot,” Imre Speizer, a strategist at Westpac, was quoted as saying by Reuters.

“This was a significant hawkish surprise, not one to be brushed off lightly,” Speizer added.

Meanwhile, the US Dollar Index was up 0.30% to 102.076 on Wednesday, while rebounding from an overnight low of 101.64, a level unseen since April 26th.

Market players now turn their attention to the Minutes of the Federal Reserve’s most recent policy meeting, due out later on Wednesday, for more clues over the pace of the bank’s tightening cycle.

The yield on benchmark US 10-year bonds edged up to 2.7685% earlier on Wednesday, after slipping as low as 2.718% overnight, or the lowest level in nearly a month.

As of 9:00 GMT on Wednesday NZD/USD was edging up 0.10% to trade at 0.6469. Earlier in the trading session the major Forex pair rose as high as 0.6514, which has been its strongest level since May 5th (0.6568).

NZD/USD has edged up 0.27% so far in May, following a 6.87% slump in April.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6451
R1 – 0.6479
R2 – 0.6497
R3 – 0.6525
R4 – 0.6553

S1 – 0.6434
S2 – 0.6406
S3 – 0.6389
S4 – 0.6372