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Kiwi outperforms as RBNZ signals a possible August rate hike

Thursday 15 July, 2021

Daily Currency Update

NZD - New Zealand DollarThe New Zealand dollar crept higher through Wednesday, extending through 0.70 following the RBNZ monetary policy review. The report marked a change in tone for the RBNZ and suggested policymakers are prepared to move away from the current accommodative program toward tighter policy conditions. The Bank announced it would stop buying bonds under its LSAP programme next week in a bid to reduce monetary stimulus. The RBNZ had previously planned to continue bond purchases into June 2022 and the decision to stop buying bonds clears the way for interest rate hikes. Markets seized upon the shift in policy, bringing forward rate hike expectations to as early as next month, with 70% of investors now pricing in an August rate hike. The NZD jumped off intraday lows at 0.6940 to touch session highs at 0.7040 and appears well placed to extend gains through the coming weeks and into the August policy meeting should data points support a rate hike. Our focus turns now to Friday’s CPI print. A strong read above expectations could prompt the market to fully price in an August rate hike and drive the NZD toward and through 0.71 US cents.

Key Movers

The US dollar fell against most major counterparts through trade on Wednesday with the Bloomberg dollar index falling half a percent and giving up gains enjoyed in the aftermath of Tuesday’s CPI print. USD weakness allowed the euro to push back through 1.18 to touch intraday highs at 1.1840, while the pound tested 1.39 having touched highs at 1.3890. Markets largely ignored a surprise uptick in domestic inflation and comments from Bank of England member Ramsden. The suggestion the Bank of England could tighten policy sooner than originally forecast is not a surprise to markets with most analysts already front running a shift in monetary policy. The CAD failed to capitalise, softening following the Bank of Canada’s monetary policy statement. The BOC opted to leave rates on hold at 025% and taper bond purchases by 1 billion per week as expected; however, it failed to expand on forward guidance and presented a somewhat dovish overview of the recovery. The CAD fell half a percent overnight, a move compounded by a fall in oil prices.

Expected Ranges

  • NZD/USD: 0.6940 - 0.7120 ▲
  • NZD/EUR: 0.5890 - 0.5990 ▲
  • GBP/NZD: 1.9580 - 1.9950 ▼
  • NZD/AUD: 0.9320 - 0.9450 ▲
  • NZD/CAD: 0.8680 - 0.8850 ▲