NZD/USD – RBNZ may be done with its tightening cycle after pause

• RBNZ leaves rates unchanged after near-two year hiking cycle
• Inflation is seen returning to target next year
• NZD performing better but potentially running on fumes

The RBNZ opted to pause its tightening cycle earlier today after a very aggressive tightening cycle over the last couple of years.

After increasing the cash rate to 5.5%, there are signs that the economy is slowing which will bring inflation down. While inflation has only fallen to 6.7% so far, data next week is expected to show it falling further and the central bank is confident it will return to its 1-3% target range next year.

New Zealand faced many challenges in the aftermath of the pandemic which contributed to surging inflation but much higher rates and levels of immigration appear to be easing those pressures.

Is the New Zealand dollar running on fumes?

The kiwi has been gradually trending lower in the first half of the year but there have been some small signs that this may be about to change. The question is, if the RBNZ is done, has the bullish case softened somewhat? Or could a stronger economy draw investors back in?

NZDUSD Daily

Source – OANDA on Trading View

Over the last month, it’s run into support around 0.60 against the US dollar which falls around the 50% Fibonacci retracement level – October 2022 lows to February 2023 highs.

Then in late June, it rebounded slightly ahead of that previous low which could be viewed as a bullish signal but many will still be unconvinced.

A break above the descending channel could be another stronger signal that the trend has turned for the pair, although so far, it appears to be running low on momentum just when it needs it most.

NZDUSD 4-Hour

Source – OANDA on Trading View