NZDUSD Holds Under .8645 After Rate Hike

by on April 24, 2014 5:09 am BST

The kiwi rises against the greenback after the Reserve Bank of New Zealand (RBNZ) decided to increase their benchmark rate by an additional 25 bps, the second consecutive rate hike. Market participants were expecting the bump in interest rates from 2.75 percent to three percent, and the NZDUSD seen a break through .8600 to .8636, but price action stopped just shy of resistance at .8645.

Gains are limited, and it some traders believe the kiwi is still a bit pricey at these levels. “We believe further NZD appreciation is likely to be capped within a cent of current rates as the tightening cycle is fairly priced,” according to Annette Beacher, head of Asian Pacific research at TD Securities. However, the RBNZ had to tighten due to two primary concerns: a potential housing bubble and inflation. RBNZ Governor Graham Wheeler said “headline inflation is moderate, but inflationary pressures are increasing and are expected to continue doing so over the next two years. In this environment it is important that inflation expectations remain contained. To achieve this it is necessary to raise interest rates towards a level at which they are no longer adding to demand.”

NZDUSD broke the down trend on Tuesday, but traded in a tight range after finding support on the 200 EMA several times on the 4H chart. The interest rate news has allowed price action to breech the range and priced support at .8620. The 200 EMA will act as secondary support intraday.

The pair could see some lingering around current levels until the anticipated speech my European Central Bank (ECB) President Mario Draghi early this morning. NZDUSD couldd trend back to support, if not to retest .8600. Resistance can be found at .8645 and .8680.

4H Chart of NZDUSD

4H Chart of NZDUSD