Forex News

Commerzbank’s Volkmar Baur reports the Reserve Bank of New Zealand (RBNZ) lifted the Official Cash Rate (OCR) to 2.5%, with the New Zealand Dollar (NZD) gaining slightly versus US Dollar (USD). RBNZ’s tone was more hawkish than expected, addressing structural inflation risks, and Commerzbank still looks for one more hike. However, they see market pricing of three additional hikes as excessive, expecting kiwi weakness once expectations are pared back.

Market overpricing future OCR hikes

"As we expected, the Reserve Bank of New Zealand raised the official cash rate (OCR) this morning to 2.5%. The kiwi reacted positively to this move and gained slightly against the USD after having fallen significantly in recent weeks. In its statement, however, the central bank’s tone was, on the whole, perhaps a bit more hawkish than we would have expected."

"We, too, had anticipated a certain hawkish undertone. After all, it is unclear exactly how inflation will develop in the coming months, and the bank naturally does not want to rule out the possibility of raising rates again. We, too, expect the RBNZ to raise the OCR again at one of its next two meetings."

"The RBNZ’s hawkish tone, however, went beyond the inflation shock triggered by the Iran conflict. Structural factors were also addressed that could potentially make it necessary to raise the cash rate further. Low productivity was mentioned here, among other things, as a factor that could structurally increase price pressures."

"We also recognize the problem of low productivity growth. Over the coming months, however, we expect the economy to be too weak to sustain price pressures. Governor Breman is quoted in a similar vein in the statement when she says that high inflation could weigh on household demand."

"We therefore stand by our assessment that, while we expect another rate hike in the coming months, that is all we anticipate. As of today, the market is pricing in three additional OCR hikes over the next 12 months. We believe that is too much. Once the market begins to adjust its expectations in this regard, the kiwi is likely to come under pressure again."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• GBP/USD flattens around 1.3355 in the countdown to the FOMC Minutes.
• In the Fed’s June policy meeting, the central bank left interest rates unchanged in the 3.50%-3.75% range.
• Andy Burnham has already confirmed that he will follow the principles of Labour’s manifesto.

The GBP/USD pair trades almost flat at around 1.3355 during the European trading session on Wednesday. The Cable consolidates as investors await the Federal Open Market Committee (FOMC) minutes of the June policy meeting, which will be published at 18:00 GMT.

At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally lower to near 101.05.

Investors will closely read the FOMC Minutes to gauge possible reasons that led officials to abandon forward guidance on the monetary policy outlook. In the policy meeting, the Fed decided to leave interest rates unchanged in the range of 3.50%-3.75%, citing upside inflation risks, and 9 out of 19 policymakers favored an interest rate hike by the year-end.

Meanwhile, the British Pound (GBP) struggles for direction as investors seek fresh cues regarding the United Kingdom’s (UK) fiscal policy outlook under new leadership. However, newly elected Member of Parliament and Mayor of Greater Manchester, Andy Burnham, the front-runner for UK leadership after Prime Minister (PM) Keir Starmer’s resignation, has already stated that he will continue Labour’s manifesto.

GBP/USD technical analysis

GBP/USD trades calmly near 1.3355, holding a mildly bullish bias as it remains above the 20-day exponential moving average (EMA) at 1.3321.

The bounce from the recent 1.32 area and the pair’s ability to stay supported by the short-term EMA hint at a tentative recovery phase, while the Relative Strength Index (RSI) at 52.8 shows modest positive momentum without entering overbought territory.

On the topside, the next significant barrier is the downward resistance trend line, with its break level around 1.3500. Looking down, the immediate support is reinforced by the 20-day EMA at 1.3321, and a daily close back below this level would weaken the current constructive tone and force the pair to revisit the June 24 low at around 1.3140.

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

United Overseas Bank’s (UOB) Quek Ser Leang highlights EUR/USD’s failure to extend its recent advance, with momentum fading after a retreat from recent highs. The pair is now seen oscillating between 1.1360 and 1.1450 in coming weeks, while intraday price action may test 1.1390 without threatening the more important 1.1360 support unless the 1.1430 resistance breaks.

Momentum fades into sideways pattern

"24-HOUR VIEW: Two days ago, EUR traded within a range of 1.1408/1.1444 and closed largely unchanged at 1.1440 (+0.04%). Yesterday, we stated that we “continue to expect range-trading, but the firmer underlying tone suggests EUR is likely to trade in a higher range of 1.1425/1.1470.” Our assessments turned out to be incorrect, as EUR fell to a low of 1.1407. Despite the relatively sharp decline, downward momentum has not increased much. However, there is scope for EUR to dip below 1.1390. The major support at 1.1360 is unlikely to come into view. Resistance is at 1.1420; a breach of 1.1430 would indicate that the immediate downward pressure has eased."

"1-3 WEEKS VIEW: Our most recent narrative was from last Friday (03 Jul, spot at 1.1430), when we highlighted that “the bias for EUR is tilted to the upside.” We also highlighted that “expect firm resistance at 1.1470 and 1.1500.” EUR has not been able to make much headway on the upside, and yesterday, it retreated to a low of 1.1407. Although our ‘strong support’ level at 1.1390 has not been breached yet, upward momentum has largely faded. EUR has likely moved back into a range-trading phase, and we expect it to trade between 1.1360 and 1.1450 for now."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)