In the middle of this week, the New Zealand dollar was among the market leaders. Before the rise, the NZD/USD pair sank noticeably, but then the kiwi gained height.
On Wednesday, February 24, the kiwi consolidated at local highs, entering an upward spiral. The kiwi's meteoric rise was boosted by the Reserve Bank of New Zealand's (RBNZ) interest rate decision. The regulator left it at the previous level of 0.25%, expressing caution about the prospects of the national economy. Two programs remained unchanged: large-scale asset purchase (LSAP) for up to $100 billion and credit financing (FLP).
The NZD rally was preceded by a decline: before climbing to three-year highs, the kiwi fell into a price hole. However, the kiwi quickly got out of it, conquering the next heights. On Wednesday afternoon, the NZD/USD pair was trading in the range of 0.7389-0.7390, heading towards the 0.7400 round level.
Currently, the Reserve Bank of New Zealand adheres to an ultra-loose monetary policy. According to Adrian Orr, RBNZ manager, the economy still needs monetary stimulus. The RBNZ believes that monetary policy should remain ultra-loose until inflation reaches the 2% target. According to analysts, the rise in inflation and employment will become the reasons for changing the monetary policy. This forecast is also confirmed by the regulator, which expects inflation to rise to 2% by 2023. Note that at the moment it is 1.4%.
The current position of the RBNZ disappointed market participants, who expected more decisive actions from the monetary authorities. Traders and investors expected the regulator to take into account the recent improvement in macro statistics, but this did not happen. Concerns about the prospects of the national economy outweighed, and the RBNZ chose not to change anything.
The current situation played into the hands of the New Zealand dollar: the Kiwi spread its wings and overcame another milestone. Experts do not exclude that the next step for the NZD will be 0.7400. The Kiwi was supported by a favorable forecast from the regulator, which expects GDP to rise to a maximum of 3.8% by the end of 2022. According to analysts, this year, the unemployment rate in the country will rise to 5.2% due to low activity in several industries. However, further economic activity is expected to recover amid global optimism and the rollout of COVID-19 vaccinations.