The New Zealand Dollar or Kiwi is suffering from the record inflation of 6.9%, which has not been seen in the last 30 years. The Reserve Bank of New Zealand (RBNZ) was forced to hike its interest rates to 2.5% from the previously set 2%. Moreover, RBNZ warned that interest rates would reach 3.5% by the end of 2022 and 4.0% in 2023. Such monetary actions usually lead to a strengthening of the national currency.
But this does not seem to be the case now as the U.S. Dollar is outweighing the Kiwi as the U.S. Federal Reserve (Fed) continues to raise interest rates in its effort to tame blistering inflation. The Greenback is seen to be more attractive as it is performing its safe-haven role amid geopolitical tensions, global recession risks, the energy and food crisis. The June consumer prices index in the United States, that surged to 9.1% year-on-year, pushed the U.S. Dollar index even higher to its 20-year record above 108 points.
So, the strength of the Greenback is weighing on the Kiwi and the currency could continue its downside slide. NZDUSD declined to 0.6000, the lowest since May 2020 when the COVID-19 pandemic was at its peak and spreading fears across the globe. The Kiwi was above 0.7000 to the Dollar in April 2022.
The RBNZ’s decision curbed the slide of the Kiwi at 0.6080, and the Kiwi is indeed performing a rare strong contumacy to conquer the Greenback. This may lead to a consolidation of NZDUSD, and a possible correction to 0.6200-0.6300. However, it would unlikely change the overall downside trend that may push the Kiwi below 0.6000 as the Fed continues with its monetary tightening.
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