February 22, 2022 15:17:28

It’s been all change for the kiwi since we wrote about it just a week ago, when price action looked to be rolling over. The widespread deleveraging in equity markets and risk in general has not hit pro-growth currencies, like we and many thought. Those traditional proxies for global risk sentiment like NZD and AUD have actually outperformed as the geopolitical focus centres on Europe and the market impact.

For sure, the recent re-opening of the economies down under and of the country’s borders are giving a boost to regional confidence. The RBNZ meeting overnight may also have helped, with the bank expected to hike for a third time, bringing the cash rate to 1%.

Guidance will be key with the bank forecast to upgrade rate projections on the back of a tight labour market and rising inflation. The risks around a possible spike in energy costs may potentially need to be tackled too.

The RBNZ is one of the more forward leaning central banks in this cycle with the market currently implying five more 25bps hikes this year if they raise rates tomorrow. A front-loaded bigger 50-bp move has around a 30% implied probability.

NZD/USD needs a strong close above resistance

Since bottoming out at 0.6529 late last month, the kiwi recovery has gained momentum over the last week. NZD is enjoying its six straight day of gains and looks to be advancing above some key levels.

The December lows around 0.67 had acted as resistance over the last few sessions. Just above here, trendline resistance and the 50-day SMA at 0.6722/27 tried to cap the upside too.

With bullish momentum still evident, a strong close should see buyers eye up 0.68 and next resistance at 0.6808. Much depends on the upcoming meeting with an obvious hawkish bias expected to underpin kiwi support. A stronger risk-off environment and a more cautious RBNZ will test support at 0.6701 and then 0.66.