The RBNZ meeting was as expected this week. Rates were raised by 50bps to 3.50bps and the RBNZ maintained a robust view of the domestic economy. Reuters reported that the board even debated hiking by 75bps and was expressing concerns over a weaker NZD which posed threats to the inflationary outlook. The RBNZ noted that domestic spending has been strong despite slowing growth. Employment levels are high and households have managed to keep higher levels of savings. The country, like many other places, is still seeing labour shortages.
Unemployment is low and the committee wants to see monetary conditions tighten so that they achieve their inflation target. Inflation is still high in New Zealand with CPI y/y at 7.3%.
So, the RBNZ has affirmed that they will not pull back from hiking rates. This hawkish stance should keep the NZD supported. However, it is worth noting that the NZD has been tricky to trade recently. Despite some pretty strong fundamentals the currency does not always strengthen. Therefore, a more prudent approach might be to step aside and avoid trading the NZD until it becomes more predictable.
Although it should also be said that an AUDNZD sell bias makes sense on the divergence between the RBA and the RBNZ, but managing risk is key here. Looking at major areas where stops can be placed above key technicals would be the sensible approach if you did decide to take a trade.
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