NZD/USD sticks to hawkish RBNZ-inspired gains to over one-month high, around 0.6765-70

• NZD/USD gained strong traction on Wednesday in reaction to a more hawkish RBNZ decision.
• A positive risk tone further benefitted the perceived riskier kiwi amid subdued USD demand.
• Geopolitical tensions might turn out to be the only factor that could cap gains for the major.

The NZD/USD pair held on to its post-RBNZ gains and was last seen trading around the 0.6765-0.6770 region, or over one-month high heading into the European session.

The pair gained strong positive traction on Wednesday after the Reserve Bank of New Zealand (RBNZ) announced its policy decision and opted for a more hawkish stance. As was widely expected, New Zealand's central bank hiked interest rate for the third time since October and signalled a more aggressive tightening path going forward.

In the accompanying policy statement, the RBNZ noted that the decision between a 25bp and 50bp hike was finely balanced and also increased the official cash rate (OCR) peak forecast. The central bank projected that the cash rate would reach 2.2% by the end of 2022 and 3.35% in the last quarter of 2023, 0.75% higher than its November forecast of 2.6%.

Apart from this, a generally positive tone around the equity markets acted as a tailwind for the perceived riskier kiwi amid subdued US dollar demand. The fact that new economic sanctions on Russia were not as bad as feared helped ease the nervousness over the situation in Ukraine, which boosted investors' confidence and undermined the safe-haven buck.

That said, the risk of an imminent Russian invasion of Ukraine kept a lid on the optimistic market moves and held back bullish traders from placing aggressive bets around the NZD/USD pair. It is worth recalling that Russian President Vladimir Putin recognized two breakaway regions in eastern Ukraine as independent entities and allowed troops to enter the area to maintain peace.

Nevertheless, the follow-through move beyond the previous monthly swing high, around the 0.6730-0.6735 region might have already set the stage for a further appreciating move. Hence, a subsequent strength, which should allow the NZD/USD pair to reclaim the 0.6800 mark, remains a distinct possibility amid absent relevant market-moving economic releases from the US.

Technical levels to watch