Home Daily Commentaries NZD dips after bank of Canada surprise rate hike

NZD dips after bank of Canada surprise rate hike

Daily Currency Update

The New Zealand dollar closed lower on Wednesday, after being caught in the backwash of a broad risk-off move and weaker than anticipated Chinese trade data. The NZD tracked marginally lower through the domestic session and the early half of overnight trade, before bouncing up through US$0.6090 and eyeing a break toward US$0.61 leading into the Bank of Canada (BoC) monetary policy meeting. After touching intraday highs at U$S0.6095, the NZD dropped sharply after the Bank of Canada surprised markets by lifting rates. Investors had priced in a 3rd consecutive month where interest rates would remain at 4.5%, and the decision to lift the underlying policy rate to 4.75% prompted a swift sell-off across equities and risk assets. The NZD slipped back below US$0.6050 before finding support at US$0.6030. Having bounced off intraday lows, the NZD traded flat into this morning’s open, unable to extend gains amid further concerns surrounding China’s growth outlook. Trade data showed import and export activity contracted in May, elevating fears of a broader global slowdown and softening the domestic outlook. The Chinese Yuan continued its precipitous slide breaking 7.15 against the USD.

Our attentions turn now to US unemployment claims as the only real marker of direction on the day's macroeconomic ticket.

Key Movers

The Canadian dollar has been the day's big mover, surging upward after the Bank of Canada (BoC) surprised markets by opting to lift rates by 25 basis points. After keeping rates steady for the last 2 months, policymakers caught investors off guard, lifting the policy rate from 4.5% to 4.75%. The BoC cited stronger than anticipated growth, a rebound in housing market activity, persistent demand across the economy and stubbornly high inflation pressures as key factors in influencing this month’s decision. The move triggered a sell-off across equities, bonds and risk assets and drove global rates higher into the daily close. The CAD strengthened a full cent following the decision while the JPY underperformed against a backdrop of higher global rates and the Euro and GBP traded flat. The USD found support in the risk-off move and higher rates backdrop edging upward on the day.

With little of note on the global macro ticket, our attentions turn to US unemployment claims ahead of key Chinese Inflation data Friday and next week's all-important FOMC interest rate update.

Expected Ranges

  • NZD/USD: 0.5980 - 0.6120 ▼
  • NZD/EUR: 0.5580 - 0.5720 ▼
  • GBP/NZD: 2.0420 - 2.0780 ▲
  • NZD/AUD: 0.8980 - 0.9120 ▼
  • NZD/CAD: 0.8000 - 0.8150 ▼