The Reserve Bank of New Zealand held the Official Cash Rate at 0.25% due to the "heightened uncertainty with the country in a lockdown" nW9N2KO021.
Predictably the NZD/USD fell sharply in response, but the move proved short-lived as the RBNZ statement and OCR projections were quite hawkish.
It is clear from the statement and minutes that the decision to remain on hold was a temporary one and settings are ripe for monetary tightening, once there is clarity on New Zealand's COVID outbreak nL1N2PO1U7.
Analysts took special note of the RBNZ's OCR projections that indicated an aggressive tightening cycle through the end of 2022.
Imre Speizer, head of NZ strategy at Westpac told Reuters: "The OCR track, which they've published, says they will probably go October and November...
it's aggressive because it goes above 2% - that's a pretty punchy track." nL1N2PP047
Between Tuesday's news of the first COVID case in New Zealand since February and the RBNZ decision to remain on hold, NZD/USD longs have largely been cleared out. The pair dropped to 0.6868 from 0.6940 on the RBNZ decision, but the subsequent bounce above 0.6920 suggests fresh buying emerged in anticipation of a hawkish stance.
A break above the 21-day moving average resistance at 0.6994 would suggest a short-term bottom is in place.
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