AUD/NZD plunges almost 70 pips on RBNZ rate hike

• AUD/NZD breaks through confluence of key supports around 1.1000 following RBNZ moves.
• The RBNZ meets the market consensus for a 50 basis point rate hike to 4.75%.
• Cautious optimism ahead of Fed minutes and mixed data challenge pair buyers.

He AUD/NZD fell almost 70 points to 1.0973, fresh six-day low, during the early hours of Wednesday in Europe, when the Reserve Bank of New Zealand (RBNZ) announced its long-awaited decision on interest rates. In doing so, the currency pair ignores geopolitical fears around China and North Korea, as well as concerns about a less aggressive move by the RBNZ due to natural calamities in New Zealand.

That being said, the RBNZ announced its tenth rate hike at a time when policymakers are scrambling to allay inflationary fears, raising the benchmark rate by 0.50% to 4.75%. The monetary policy statement suggests that there are early signs of easing of price pressures. This should challenge the bears of the AUD/NZD.

On the other hand, comments by US Secretary of State Antony Blinken and Russian President Vladimir Putin were the main catalysts weighing on market sentiment. That said, Blinked said that the United States suspects that China is considering providing military support to Russia. In the same vein are the concerns of the markets about the trade agreement between the US and Taiwan. On the other hand, Russia suspended its nuclear arms treaty with the United States and pledged to maintain its military actions in Ukraine.

In addition, Russian President Vladimir Putin delivered his state of the nation address to the Russian Federal Assembly on Tuesday, addressing both houses of Parliament. During the speech, the president clearly mentioned: “Our task is to take our economy to new frontiers”, which in turn highlights the heightened geopolitical tension around Ukraine. In the same vein, US Treasury Undersecretary Wally Adeyemo said on Tuesday: “The US and its allies are planning new sanctions this week to continue isolating Russia over the war in Ukraine.”

Amid these rallies, 10-year and 2-year US Treasury yields are hovering around three-month highs set the day before, while S&P 500 Futures post modest gains despite from the negative close on Wall Street.

Having witnessed the initial reaction to the RBNZ move, AUD/NZD traders should focus on the risk catalysts, mainly around China and Russia, for clear indications. If geopolitical issues continue to undermine market optimism, the price could continue to decline.

AUD/NZD Technical Analysis

A daily close below the convergence of the 200 DMA and the rising support line of two months ago, around 1.1000, is necessary for the AUD/NZD bears to regain control.