As expected, the RBNZ hiked interest rates by another 0.25% in their latest policy statement. But why aren’t traders showing any love for the Kiwi?
As you can see from the 15-min chart of NZD/USD below, the pair dropped by close to a hundred pips right after the announcement then continued to edge lower for the rest of the trading sessions.
Apparently, RBNZ Governor Graeme Wheeler hinted that this might be their last rate hike for the year, as he mentioned that they would pause from tightening to assess the impact of their latest moves. “It is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level,” he said. “The speed and extent to which the OCR will need to rise will depend on the assessment of the impact of the tightening in monetary policy to date, and the implications of future economic and financial data for inflationary pressures.”
With that, analysts priced in lower odds of seeing another rate hike in the next few months, as some projected that the next increase might not happen until March next year. After all, inflationary pressures have been subdued, particularly among wages and in the dairy sector.
In fact, falling commodity price levels have been such a persistent concern for the RBNZ that they decided it’s time to jawbone their currency again. According to the central bank’s official statement, the trading level of the Kiwi is “unjustified and unsustainable” and there is “potential for a significant fall” as it has to adjust to weakening commodity prices.
This isn’t something new from the RBNZ, as Wheeler has a record of jawboning and has even staged a secret currency intervention last year. At that time, NZD/USD had been trading around the .8700 levels and dropped by roughly 300 pips in a few days.
If the RBNZ is all bark and no bite though, it won’t be long before market participants realize that the New Zealand central bank can’t afford to intervene in the currency market for now. Who knows? Perhaps Wheeler and his men are simply waiting for the Kiwi rallies to retreat before going on another rate hike streak.
For now, the shift in the RBNZ’s stance to a more cautious one could keep any Kiwi gains at bay. It doesn’t help the higher-yielding commodity currency that geopolitical tension has allowed risk aversion to extend its stay in the markets. Sooner or later though, market participants could be drawn back to the positive interest rate differential of buying the Kiwi against lower-yielding currencies and allow the longer-term climb to resume.
As you can see from the 15-min chart of NZD/USD below, the pair dropped by close to a hundred pips right after the announcement then continued to edge lower for the rest of the trading sessions.
Apparently, RBNZ Governor Graeme Wheeler hinted that this might be their last rate hike for the year, as he mentioned that they would pause from tightening to assess the impact of their latest moves. “It is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level,” he said. “The speed and extent to which the OCR will need to rise will depend on the assessment of the impact of the tightening in monetary policy to date, and the implications of future economic and financial data for inflationary pressures.”
With that, analysts priced in lower odds of seeing another rate hike in the next few months, as some projected that the next increase might not happen until March next year. After all, inflationary pressures have been subdued, particularly among wages and in the dairy sector.
In fact, falling commodity price levels have been such a persistent concern for the RBNZ that they decided it’s time to jawbone their currency again. According to the central bank’s official statement, the trading level of the Kiwi is “unjustified and unsustainable” and there is “potential for a significant fall” as it has to adjust to weakening commodity prices.
This isn’t something new from the RBNZ, as Wheeler has a record of jawboning and has even staged a secret currency intervention last year. At that time, NZD/USD had been trading around the .8700 levels and dropped by roughly 300 pips in a few days.
If the RBNZ is all bark and no bite though, it won’t be long before market participants realize that the New Zealand central bank can’t afford to intervene in the currency market for now. Who knows? Perhaps Wheeler and his men are simply waiting for the Kiwi rallies to retreat before going on another rate hike streak.
For now, the shift in the RBNZ’s stance to a more cautious one could keep any Kiwi gains at bay. It doesn’t help the higher-yielding commodity currency that geopolitical tension has allowed risk aversion to extend its stay in the markets. Sooner or later though, market participants could be drawn back to the positive interest rate differential of buying the Kiwi against lower-yielding currencies and allow the longer-term climb to resume.
Recommended Content
Editors’ Picks
USD/JPY pops and drops on BoJ's expected hold
USD/JPY reverses a knee-jerk spike to 142.80 and returns to the red below 142.50 after the Bank of Japan announced on Friday that it maintained the short-term rate target in the range of 0.15%-0.25%, as widely expected. Governor Ueda's press conference is next in focus.
AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood
AUD/USD attacks 0.6800 in Friday's Asian trading, extending its gradual retreat after the PBOC unexpectedly left mortgage lending rates unchanged in September. A cautious market mood also adds to the weight on the Aussie. Fedspeak eyed.
Gold consolidates near record high, bullish potential seems intact
Gold price regained positive traction on Thursday and rallied back closer to the all-time peak touched the previous day in reaction to the Federal Reserve's decision to start the policy easing cycle with an oversized rate cut.
Ethereum rallies over 6% following decision to split Pectra upgrade into two phases
In its Consensus Layer Call on Thursday, Ethereum developers decided to split the upcoming Pectra upgrade into two batches. The decision follows concerns about potential risks in shipping the previously approved series of Ethereum improvement proposals.
Bank of Japan set to keep rates on hold after July’s hike shocked markets
The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session.
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.