New Zealand dollar jumps as RBNZ hints at rate hike in 2022

SYDNEY: The New Zealand dollar jumped on Wednesday after the country's central bank projected that it might hike interest rates as early as September next year, even as it emphasised patience was needed on policy.

The kiwi dollar climbed 0.9% to $0.7290, extending a rally from a $0.7158 low at the start of the week. The surge broke layers of resistance at $0.7250 and $0.7271 and sets up the next chart target of $0.7304.

The Reserve Bank of New Zealand (RBNZ) kept rates at 0.25% as expected but surprised many by projecting a rate of 0.49% by September 2022, and no less than 1.78% by June 2024.

Some analysts had thought they might hike as early as August next year, but others had seen no move until 2023 or 2024.

The minutes showed the policy committee emphasised this projection was "conditional" on the economy evolving as expected.

"In line with their least regrets framework, members reinforced their preference to maintain the current level of monetary stimulus until they were confident that the inflation and employment objectives would be met," minutes showed.

"They agreed this would require considerable time and patience."

Bonds sold off hard on the news, with two-year yields rising 9 basis points to 0.38%. Yields on 10-year paper jumped 8 basis points to 1.91%, though this cash market is often very illiquid.

Overnight index swaps, which essentially show market thinking on rates, climbed 16 basis points to 0.66% for August, 2022.

The implied rate on June 2022 bank bill futures rose to 0.58%, from 0.45%.

"The RBNZ now thinks that it will be in a position to hike rates in the second half of next year, in line with our long-standing forecast," said Marcel Thieliant, senior Australia & New Zealand economist at Capital Economics.

"With the RBNZ set to become one of the first central banks in advanced economies to hike rates, we think that the New Zealand dollar will continue to strengthen."

The rise in the kiwi lifted the Aussie as well, taking it to $0.7778 from an early $0.7750. It needs to break resistance at $0.7813 to extend the bounce.

So far, the Reserve Bank of Australia (RBA) has stressed that its policy will stay super loose for an extended period, with no hike seen until 2024 at the earliest.