In response to a more hawkish Reserve Bank of New Zealand, the NZD/USD pair gets new bids on Wednesday and gets close to a multi-month high. The pair is being bought early in the European day, but bulls are waiting for sustained momentum over 0.6200 before getting ready for more gains.

As expected, the RBNZ raised its benchmark rate by a record 75 basis points (bps) to 4.25 percent, which is the highest it has been since the financial crisis of 2008. This helps the NZD/USD pair, as does selling the US dollar. Even though there are factors that help, spot prices haven’t gone up since the RBNZ warned of an economic collapse in the near future.

Investors are worried that COVID-19 will spread again in China and that lockdowns will happen again. This, along with fears of a Russia-Ukraine escalation, is bad news for the pair, who doesn’t like to take risks. The US Dollar is still on the defensive because people think the Fed will stop tightening policy and only raise rates by 50 basis points in December.

Recent hawkish comments by Fed officials show that the US central bank will keep raising interest rates. The NZD/USD pair is also limited by a small rise in the yields on US Treasury bonds. Traders don’t seem eager and would rather wait until the minutes of the November FOMC meeting come out later in the North American day.

Conclusion

Market participants will look for new clues about the Fed’s plans and rate hikes. This will change how the USD moves in the short term and change the direction of the NZD/USD pair.