NZD/USD Climbs as RBNZ Outlook Turns Hawkish

Key Moments

Kiwi Supported by Hawkish RBNZ Commentary

NZD/USD is modestly higher during the European session on Thursday, trading close to 0.5972 after briefly touching around 0.5958. The New Zealand Dollar has found support from firmer central bank rhetoric, helping the pair recover some ground.

The move follows comments from Reserve Bank of New Zealand (RBNZ) Assistant Governor Karen Silk, which investors interpreted as hawkish for the policy outlook. In an interview with Reuters, Silk indicated that the next adjustment in interest rates “will likely be up.” She linked this stance to persistent upside risks to inflation, while also acknowledging that “Uncertainty over the path of inflation and consumer demand meant there are still risks on both sides.”

Reaction to Recent RBNZ Decision

The latest gains come after a sharp pullback in the New Zealand Dollar on Wednesday. The currency weakened when the RBNZ kept its Official Cash Rate (OCR) unchanged at 2.25%, in line with expectations, but refrained from signaling imminent tightening.

Market disappointment was compounded by guidance from RBNZ Governor Anna Breman, who stated: “Not planning to hike until we see a stronger economy, more inflationary pressure.” Those remarks contrasted with Silk’s more hawkish tone, contributing to a shifting policy narrative that traders are now reassessing.

Firm US Dollar Ahead of GDP Release

While the Kiwi is drawing support from RBNZ commentary, the US Dollar remains broadly firm as traders position for the preliminary United States Q4 Gross Domestic Product data due on Friday. Economists anticipate that the US economy grew at an annual pace of 3% Year-on-Year, compared with the previous 4.4% reading.

The combination of a resilient USD and evolving RBNZ expectations is keeping NZD/USD in a relatively tight range as market participants balance domestic and US macro drivers.

NZD/USD Technical Picture

As of writing, NZD/USD is trading around 0.5973, posting a marginal intraday gain. The 14-day Relative Strength Index stands at 51, a neutral reading, after pulling back from overbought territory, indicating that upside momentum has cooled.

Price action is currently capped just below the 20-period Exponential Moving Average at 0.5988, where the previously rising slope has started to flatten. This configuration suggests a consolidation phase as the pair works through prior advances.

If NZD/USD extends its decline and breaks convincingly below the February 6 low at 0.5928, the pair could become increasingly vulnerable to a move toward the January 23 low at 0.5891. That area is likely to be closely monitored as a key support zone.

On the upside, a clear daily close back above the 20-period EMA at 0.5988 would suggest that buyers are regaining control, potentially paving the way for a continuation of the recovery toward the February 18 high at 0.6054.

(The technical analysis of this story was written with the help of an AI tool.)

RBNZ: Mandate and Policy Tools

The Reserve Bank of New Zealand is the country’s central bank. Its stated economic goals include maintaining price stability – defined as Consumer Price Index inflation within a 1% to 3% range – and supporting maximum sustainable employment.

Policy decisions are made by the RBNZ’s Monetary Policy Committee, which sets the level of the Official Cash Rate in line with these objectives. When inflation exceeds target, the committee may raise the OCR to make borrowing more expensive for households and businesses, slowing economic activity. Higher policy rates generally support the New Zealand Dollar by increasing domestic yields, while lower rates tend to weigh on the currency.

Employment outcomes also play a central role in RBNZ decision-making. The bank describes “maximum sustainable employment” as the highest level of labor utilization that can be maintained without causing inflation to accelerate. According to the RBNZ, “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.

In extreme conditions, the RBNZ can resort to Quantitative Easing, a non-standard policy tool. Under QE, the central bank creates local currency to purchase assets, typically government or corporate bonds, from banks and other financial institutions. This expands the domestic money supply and is intended to stimulate economic activity. Such measures usually exert downward pressure on the New Zealand Dollar. QE is considered a last-resort option when cutting interest rates alone is unlikely to achieve the bank’s objectives, and it was employed during the Covid-19 pandemic.