NZD/USD looks to break out

NZD/USD looks to break out

Commodities and commodity currencies are under a bit of pressure at the moment. USD/CAD has run some stops through 1.2100 with crude oil prices slipping. AUD/USD is also at the lows of European trading.

The kiwi though is hanging tough near the highs of the day. The move to 0.7300 from 0.7230 was quick after the RBNZ but there hasn't been much shape to the move since.

Technically, the rise above the May highs is bullish but it will take a close to confirm the break. Any time you can get a breakout on a shift at a central bank that's a strong signal.

The RBNZ delivered new forecasts for its benchmark overnight lending rate and they were higher than markets were anticipating. By mid-2023 they show rates 25 bps higher than what was priced into the OIS market. They also signal hikes beginning in H2 2022.

RBNZ leader Adrian Orr said they "are highly conditional projections" in a press conference. "You're talking about the second half of next year, who knows where we'll be by then."

The RBNZ joins Canada in projecting rate hikes next year. That sets up monetary divergences and the potential for positive carry.