RBNZ raises rates: Why is the New Zealand Dollar plunging?

NZD/USD plunges 1.45% on Wednesday, trading around 0.5810 at the time of writing, as the New Zealand Dollar (NZD) comes under heavy selling pressure despite an interest-rate hike from the Reserve Bank of New Zealand (RBNZ).

The RBNZ raises its Official Cash Rate (OCR) by 25 basis points (bps), from 2.5% to 2.75%, as widely expected. However, the Kiwi's sharp decline suggests investors are focusing less on the rate increase itself and more on the central bank's cautious guidance regarding the path of future monetary tightening.

The RBNZ judges that a gradual removal of monetary stimulus is appropriate to bring inflation back towards the 2% target midpoint while continuing to support economic growth and employment. Policymakers also indicate that acting now reduces the risk of having to raise interest rates more aggressively later, while stressing that future decisions remain dependent on the balance of risks surrounding medium-term inflation.

RBNZ Governor Anna Breman reinforces this cautious message following the decision. Breman says the OCR trajectory remains broadly aligned with the central bank's previous projections and indicates that policymakers may need additional time to assess the full impact of the current monetary stance. She also identifies the strength of the economic recovery as a key factor in determining the need for further tightening.

The focus now shifts towards the United States (US), where Friday's August employment report could influence expectations for Federal Reserve (Fed) monetary policy. Economists expect the US economy to add 58K jobs in August, while the Unemployment Rate is forecast to remain unchanged at 4.1%.

Stronger-than-expected employment figures could support the US Dollar (USD) by reinforcing expectations of tighter monetary policy from the Fed, potentially adding further downward pressure on NZD/USD. Conversely, signs of additional weakness in the US labour market could limit the Greenback's strength and provide some relief to the Kiwi.

NZD/USD technical analysis

NZD/USD trades at 0.5806 at the time of writing, maintaining a bearish near-term bias as it holds beneath the 100-period Simple Moving Average (SMA) on the 4-hour chart, near 0.5914, and the 200-period SMA, around 0.5876. The pair is capped by a dense overhead band that starts from horizontal resistance at 0.5820 and extends toward 0.5910, while the Relative Strength Index (RSI) at roughly 17 sits in oversold territory, hinting that any rebound would likely face selling pressure into that supply zone.

On the topside, initial resistance appears at 0.5820, followed by 0.5860, with the 200-period SMA at 0.5876 reinforcing that area before the 0.5910 barrier and the 100-period SMA at 0.5914 come into play higher up. On the downside, immediate support is seen at 0.5800, with a break lower exposing the next horizontal floor near 0.5760, where buyers could attempt to slow the decline.