Following the results of the meeting that ended on March 16, 2022, the leaders of the US central bank raised the interest rate by 0.25% and announced their intention to raise interest rates six more times in 2022, also allowing for the possibility of a tougher decision. In May, the Fed also began to reduce the size of its balance sheet.

"We will look at changing conditions. And if we come to the conclusion that it is appropriate to act faster and cancel the easing measures, then we will do so," Fed Chairman Jerome Powell said, at the time, at a press conference.

And now, when the Fed's monetary policy is tightening more and more, recession risks have significantly increased in the global economy, and the US dollar continues to rise in price, commodity prices are naturally declining.

Fears that the rapid tightening of monetary policy by the world's largest central banks, which so far cannot stop accelerating inflation, will lead to recession and stagflation (this is when economic growth slows down or stops altogether while inflation continues to grow) in the global economy. These fears, in turn, lead to increased demand for a safe dollar, which, in turn, puts pressure on stock markets and commodity currencies.

And so far, the US dollar is strengthening, and the dollar index (DXY) today has confidently broken through the 108.00 mark, a determining factor in the dynamics of prices for commodities, which are also quoted mainly in dollars. This also applies to the prices of dairy products, one of New Zealand's main exports.

The economy of this country in many ways still has signs of raw materials. Moreover, the main share of New Zealand exports falls on dairy products and food products of animal origin.

Following the meetings held in October and November, the Reserve Bank of New Zealand (for the first time in 7 years) raised the key interest rate to 0.50% and then to 0.75%. In February and April 2022, the interest rate was raised again to 1.5% to ease inflation and curb rapidly rising house prices. At the moment, the RBNZ interest rate is 2.0%. Earlier, the RBNZ stated that the economy no longer needs the current level of monetary stimulus.

Despite these decisions of the RBNZ management, the quotes of the New Zealand currency and, accordingly, the NZD/USD pair are falling. Currently, NZD/USD is near 0.6120, having fallen sharply since the beginning of April. The pair has been trading in a steady downward trend since May 2021, despite the tightening of the monetary policy of the central bank of New Zealand, which began in October.

This time the NZD may remain under pressure, including against the US dollar, although it may be difficult to predict the market's reaction to the results of this RBNZ meeting. Much will depend on the rhetoric of the accompanying RBNZ statements. The RBNZ interest rate decision will be published on Wednesday at 02:00 (GMT), and NZD market participants should be prepared for a sharp increase in volatility during this time.