NZD surges due to hawkish RBNZ

Source: Dukascopy Bank SA
On May 25, the Reserve Bank of New Zealand hiked its Official Cash Rate from 1.50% up to 2.00%. The hike was already expected by the markets. The announcement strengthened the New Zealand Dollar.

Meanwhile, the bank revealed that inflation is above the bank's targets, despite its recent efforts and rate hikes, some of which were higher than expected.

Quoting the statement: "The Monetary Policy Committee today increased the Official Cash Rate (OCR) to 2.0 percent. The Committee agreed it remains appropriate to continue to tighten monetary conditions at pace to maintain price stability and support maximum sustainable employment. The Committee is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range.

On balance, a broad range of indicators highlight that productive capacity constraints and ongoing inflation pressures remain prevalent. Employment remains above its maximum sustainable level, with labour shortages now the major constraint on production. The Reserve Bank's core inflation measures are above 3 percent. "

Released Document

Monetary Policy Statement

The NZD/USD reacted to the rate hike with a 75 base point or 1.17% surge from 0.6424 up to the 0.6500 mark.

On a larger scale, the NZD/USD currency pair has been affected by the ongoing broad surge of the US Dollar, which has been fueled by a US stock sell off. In May, the pair had already reached 2020 levels.

Initial Reaction

Larger scale situation

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