New Zealand Dollar: Gradual RBNZ path weighs on kiwi – MUFG
MUFG’s Lee Hardman reports that the New Zealand Dollar fell sharply after the RBNZ delivered a second 25bps hike but signalled a cautious, gradual path for future tightening.
The New Zealand Dollar experienced a sharp decline after the Reserve Bank of New Zealand (RBNZ) announced a second 25 basis points hike in the Overnight Cash Rate (OCR), but also signaled a cautious and gradual approach to future tightening. Governor Anna Breman expressed uncertainty over the timing of further OCR increases, which led to markets anticipating a faster pace of rate hikes.
The kiwi currency sold off significantly after the RBNZ's latest policy meeting and failed to surpass the 0.5900 level. Even after the second consecutive 25bps rate hike, the New Zealand Dollar weakened considerably. The cautious forward guidance from the RBNZ further undermined the kiwi, as Governor Breman indicated that further increases were likely, but the timing remained highly uncertain.
The probability of another OCR hike in October fell to around 36% from 65% before the meeting. The RBNZ left their updated projections largely unchanged, predicting the policy rate to average 2.81% in Q4 and rising to 3.07% by mid-year. All members agreed that the central OCR projections were appropriate, although they acknowledged the potential need for more hikes depending on economic conditions.
The RBNZ's gradual rate hike plans disappointed market expectations for a faster pace of tightening, which had been fueled by rising energy prices during the summer. The RBNZ's latest policy update is expected to dampen further strength in the New Zealand Dollar in the short term.
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