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. Governor Breman highlighted uncertainty over timing of further OCR increases, and unchanged projections imply only modest additional hikes, disappointing markets that had anticipated a faster pace.

Cautious guidance hits New Zealand Dollar

"The New Zealand dollar has sold off sharply overnight after the RBNZ’s latest policy meeting and failing to break above the 0.5900-level. The kiwi has weakened sharply even after the RBNZ delivered the second consecutive 25bps rate hike. The kiwi was undermined by cautious forward guidance indicating that the RBNZ may not hike again as soon as the next policy meeting. "

"RBNZ Governor Anna Breman stated “it’s likely that there will be further increase in the OCR, but the timing is highly uncertain because we will consider the effects of the two hikes that we’ve done now, and also the new information that’s happening and how that is affecting the medium-term inflation outlook”."

"The probability of another hike in October has fallen to around 36% down from 65% prior to the meeting."

"The RBNZ’s updated projections for the policy rate were left largely unchanged revealing that they expect the policy rate to average 2.81% in Q4 before rising to 3.07% by the middle of next year. All members agreed that the central OCR projections were appropriate, although acknowledged that it may need to rise more depending on economic conditions. "

"Sticking to plans for gradual rate hikes has disappointed building market expectations for faster pace of tightening which have been encouraged by rising energy prices over the summer. The RBNZ’s latest policy update will put a dampener on further kiwi strength in the near-term"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)