The New Zealand Dollar sells the hike it asked for

On Wednesday, the Reserve Bank of New Zealand (RBNZ) increased its policy rate from 2.5% to 2.75% and the New Zealand Dollar (NZD) experienced a nearly 1.7% decline against major currencies. The NZD/USD currency pair fell from near 0.5900 to the 0.5800 level before recovering slightly to around 0.5850, sitting on its 200-day Exponential Moving Average (EMA).

The RBNZ's decision to raise the Official Cash Rate (OCR) met market expectations, as it was the second consecutive increase and aligned with the consensus call. The disappointment lay in the projected rate hikes, with the bank only anticipating one more quarter point increase by the end of the year, whereas the market expected several points higher.

The weakening of the Kiwi was attributed to the gap between the expected and actual tightening, as well as the impact of an imported energy shock due to ongoing conflicts in the Middle East. Despite the initial sell-off, the NZD showed resilience, as its headline rate reached 4.1% in the second quarter, more than two points above the target midpoint.

However, the currency's weakness against the Australian Dollar and the potential upcoming labor market and supply index data suggest a bearish outlook for the NZD in the short term.