The NZD/USD currency pair is flat at 0.6793 on the day following the Reserve Bank of New Zealand’s (RBNZ) decision to raise interest rates.

As the RBNZ stepped up its efforts to counteract inflationary headwinds and keep ahead of the curve, it raised the OCR by 50 basis points to 1.5 per cent. As ANZ Bank analysts put it, “It has been a wild 16 hours since the RBNZ lifted rates, with the Kiwi initially rising quickly, only to reverse those gains totally and some as markets processed the idea that by going hard early, the RBNZ may not need to take the OCR as high later.”

“Next week’s Consumer Price Index will focus on traders’ attention,” the research note added. “According to my colleagues and I, the following week’s Q1 CPI data will support the decision to raise the federal funds rate by 50 basis points. According to analysts at ANZ Bank, headline annual CPI inflation climbed to 7.4% in Q1, up from 5.9% in Q4.”

As markets reassessed the outlook for the RBNZ, the price of the kiwi fell to 38.2 per cent of its original value. The price could continue to fall towards the March 15 lows of 0.6729 in the coming sessions, depending on the direction of the US dollar.

Conclusion

Positive market optimism has supported the New Zealand currency against the US dollar. The kiwi bulls bolster demand for risk-sensitive currencies due to the risk-on drive.