NZD/USD shoots to near 0.6900 as the RBNZ raises its OCR by 50 bps

• NZD/USD has spiked to near 0.6900 as the RBNZ has elevated its interest rate by 0.5%.
• An OCR hike of 50 bps is higher than the estimate of 25 bps.
• A higher US CPI at 8.5% has underpinned a 50 bps interest rate hike by the Fed in May.

The NZD/USD pair has witnessed a strong upside move to near 0.6900 as the Reserve Bank of New Zealand (RBNZ) has hiked its official cash rate (OCR) by 50 basis points (bps). Now, the current OCR of the RBNZ stands at 1.50%. RBNZ Governor Adrian Orr has opted for a jumbo hike to tame the galloping inflation.

This is the consecutive fourth interest rate hike by the RBNZ. The kiwi’s central bank elevated its policy rates in its last three monetary policy announcements by 25 basis points. The inflation rate of kiwi was last recorded at 5.9% for the fourth quarter of the Calendar year 2021. Next, NZ Consumer Price Index (CPI) will release next Wednesday.

Meanwhile, the US dollar index (DXY) is holding above 100.00 after reporting multi-decade high US inflation at 8.5%. This has raised the odds of a 50 basis point (bps) interest rate hike by the Federal Reserve (Fed) in its May monetary policy. To contain the soaring inflation, the Fed has left with no other alternative than to deliver a hawkish tone for this year. Fed policymakers are indicating that the Fed should paddle up the interest rates to a neutral rate so that inflation could be tamed without impacting the growth rate.

Apart from the NZ CPI next week, investors will focus on US Retail Sales, which will be disclosed on Thursday. As per the market forecast, the monthly US Retail Sales will land at 0.6% against the prior figure of 0.3%.