NZD Surges on Hawkish RBNZ Hike, Euro Losing Momentum

New Zealand Dollar rises broadly today after an hawkish RBNZ rate hike, which suggests that interest rate could peak higher than earlier projected. Australian and Canadian Dollars are also generally firmer. On the other hand, Euro is starting to lose some upside momentum again, struggling to ECB driven rally. Swiss Franc and Sterling are soft too. Dollar and Yen are mixed, awaiting next guidance from overall risk sentiment.

Technically, the next move in Euro is worth a note. While EUR/USD extended the rebound from 1.0348 short term bottom, there was no decisive buying elsewhere. Even against the weak Sterling, EUR/GBP is capped below 0.8617 temporary top. EUR/JPY is held well below 137.33 minor resistance. EUR/CHF is also limited below 1.0359 minor resistance. Selling in Euro could come back, especially in crosses, should EUR/USD’s rebound falters.

In Asia, at the time of writing, Nikkei is up 0.12%. Hong Kong HSI is up 0.64%. China Shanghai SSE is up 0.58%. Singapore Strait Times is down -0.21%. Japan 10-year JGB yield is down -0.021 at 0.211. Overnight, DOW rose 0.15%. S&P 500 dropped -0.81%. NASDAQ dropped -2.35%. 10-year yield dropped -0.099 to 2.760.

RBNZ hikes by 50bps, rate projected to peak at 3.9%

RBNZ raised the Official Cash Rate by 50bps to 2.00% as widely expected. The central bank now projects OCR to peak at 3.9% in Q2 of 2023, before moving down slightly starting from Q3 2024.

In the statement, RBNZ said: “The Committee viewed the projected path of the OCR as consistent with achieving its primary inflation and employment objectives without causing unnecessary instability in output, interest rates and the exchange rate. Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level.”

Also in the new forecasts, GDP would grow 5.4% in 2022, then slow to 3.2% in 2023, 1.3% in 2024, and 1.2% in 2025. CPI would average 6.9% in 2022, then slow to 4.4% in 2023, 2.5% in 2024, and 2.0% in 2025. Unemployment rate is projected to be at 3.2% in 2022, then gradually climb to 3.8% in 2023, 4.4% in 2024, and 4.7% in 2025.

NZD/USD rising towards 0.6527/8 cluster resistance

NZD/USD rises slightly after RBNZ rate hike, as rebound from 0.6215 short term bottom extends. Immediate focus is now on 0.6528 cluster resistance (38.2% retracement of 0.7033 to 0.6215 at 0.6527).

Sustained break of 0.6527/8 will raise the chance that whole corrective pattern from 0.7463 has completed at 0.6215. That came after drawing support from 61.8% retracement of 0.5467 to 0.7463 at 0.6229. In this case, further rally would be seen to 61.8% retracement of 0.7033 to 0.6215 at 0.6721.

However, rejection by 0.6527/8 will retain near term bearishness. Break of 0.6366 minor support will bring retest of 0.6215 low.

Japan government concerned of re-spread of coronavirus in China and Ukraine war

In May’s Monthly Economic Report, Japan’s government maintained that the economy “shows movement of picking up”. Private consumption, business investment and industrial production have “shown movement of picking up”. Exports were still “almost flat”.

Employment assessment was upgrade slightly to “shows movement of picking up” rather than just in “some components. Consumer prices “have been rising recently”, with “moderately” dropped.

The government also warned that “full attention should be given to the downside risks due to supply-side constraints, rising raw material prices and fluctuations in the financial and capital markets while there are concerns regarding the effects of the re-spread of the Novel Coronavirus in China and lengthening the state of affairs of Ukraine”.

Looking ahead

Germany Gfk consumer confidence and Q1 GDP final will be released in European session, together with Swiss Credit Suisse economic expectations. Later in the day, US will release durable goods orders and FOMC minutes.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.5026; (P) 1.5113; (R1) 1.5190; More…

Intraday bias in EUR/AUD remains neutral for the moment. On the downside, break of 1.4882 support will reaffirm that case that corrective rebound from 1.4318 has completed at 1.5277, ahead of 1.5354 resistance. Intraday bias will be back on the downside for 1.4597 support first. Break there will bring retest of 1.4318 low. For now, risk will stay on the downside as long as 1.5277 resistance holds.

In the bigger picture, as long as 1.5354 support turned resistance holds, larger down trend form 1.9799 (2020 high) is still expected to continue. On resumption, next target is 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623, which is close to 1.3624 long term support (2017 low). However, firm break of 1.5354 will indicate medium term bottoming and bring stronger rally back to 1.6434 key resistance.

Economic Indicators Update