The New Zealand dollar briefly stuck out to a daily high level at 0.6245 in the Asian session. However, then this currency pair receded back to the 0.6220 range when it entered the European session (February 22/). 

It is known that the New Zealand's interest rate announcement cannot be an essential!FFS catalyst for the NZD/USD rally amid the severity of the impact of the natural disaster that hit the two-island nation.

New Zealand's central bank or it is also known as the RBNZ this morning raised Their interest rates. That was from 4.25% to 4.75% where in line with the consensus estimates made before. 

The RBNZ also stated about the need to raise the rates again in the coming months where it is crucial to achieve the inflation target. Unfortunately, there was no change whatsoever compared to the RBNZ's announcement in the previous meeting. 

Kiwi Rebound is Caused by RBNZ Policy Announcement

That national bank still expects the highest interest rate to reach 5.5% in the second half of the year. Then it can remain at the same level until next year. 

This is becoming a disappointing news for some market participants who expect more hawkish policy guidance. The trigger for this rebound on Kiwi was actually the latest policy announcement.

That became a dissapointing expectation due to less hawkish interest rate guidance. This opinion was stated by Lee Hardman, a senior currency analyst at MUFG.

The RBNZ has a possibility to be more ggressive although the country is grieving. Its quarterly Monetary Policy report reviews at considerable length the uncertainty caused by Hurricane Gabrielle hitting New Zealand's North Island recently. 

NZ Economic in 2023 is Uncertainty 

These uncertainties could weigh on New Zealand's economic growth in 2023, while boosting inflation again in the short term. The fact is some people have lost their lives. 

Many people lost their homes, vehicles, and also property. Others, his business was disrupted. There has been significant damage to crops, soil, supplies and equipment as said by the RBNZ.

It is still early in the recovery process, and estimates of the broader economic impact are highly uncertain. However, these events can trigger to somewhat higher inflation than it should be in the near term. 

Natural disasters have destroyed capital stocks in that country. Thereby, it is also reducing supply, and will increase demand in the upcoming year. 

“Gabrielle” is the Biggest Natural Disaster in New Zealand

The Prime Minister, Chris Hipkins, on Monday said that hurricane Gabrielle was the biggest natural disaster to hit New Zealand this century. That storm has made at least 11 people died and caused material losses.

The amount of those losses were at least USD8 billion. The New Zealand government will pour out a USD187.08 million emergency relief package for the rebuilding of the devastated region.

That plan will come together with an effort for continuing to search for thousands of missing victims. Elsewhere, The minutes for the FOMC meeting earlier this year stated something. 

It was stated that policymakers agreed to tighten monetary policy further until inflation fell substantially. The Dollar Index rallied nearly 1 percent to a high level in 6bwerks. 

FOMC Meeting Observed about the High Inflation 

It was happened after the release of the data. However, in yesterday afternoon's trading (23/February), the price corrected by 0.04 percent at the level of 104.45.

The minutes of the FOMC meeting observed very tight labor market conditions and high inflation. That is why; the majority of members continued to anticipate further interest rate hikes. 

In this regard, the outlook for inflation remains a key factor that will determine the direction of monetary policy. The rate of inflation has been seen weakening over the past few months.

That is why; the FOMC stressed that it has not been enough to confirm a sustained decline in the inflation trend. At its last meeting, the Fed raised the interest rate by 25 bps from 4.5 percent to 4.75 percent.