NZD/USD jumps to daily highs near 0.6250 after RBNZ announcement

• NZD/USD has rallied firmly to near 0.6250 after the RBNZ raised its OCR by 50bp to 4.75%.
• The promise of a Cyclone Gabrielle relief package could further fuel inflationary pressures.
• The USD index will dance to the sound of the release of the FOMC Minutes.

The NZD/USD has seen significant buying interest as the Reserve Bank of New Zealand (RBNZ) has taken a hawkish tone on interest rates. The pair has shot over 40 pips higher, reaching new daily highs at 0.6247. At time of writing, the cross is trading at 0.6239, gaining 0.49% so far today.

RBNZ Governor Adrian Orr has announced a 50 basis point (bp) hike in the Official Cash Rate (OCR) to 4.75%, as expected. Investors should note that the RBNZ announced a 75 basis point rate hike at its November policy meeting.

Inflationary pressures in the New Zealand economy have not yet peaked, due to the effects of Cyclone Gabrielle. New Zealand Prime Minister Chris Hipkins has pledged a NZ$300 million ($187.08 million) aid package, potentially further fueling inflationary pressures.

Earlier in the Asian session, Statistics New Zealand released export and import figures for January. Exports were $5.47 billion lower from the previous figure of $6.72 billion, while imports were higher than their previous release. This indicates that domestic demand is very strong.

Investors’ risk appetite is improving as risk assets are gaining some strength, however caution still remains as traders have begun discounting Federal Reserve (Fed) interest rates at 5%. The Dollar Index (DXY) is facing roadblocks to overcome the critical resistance of 103.90. Today, the dollar index will dance to the release of the Federal Open Market Committee (FOMC) minutes.