SYDNEY: The New Zealand dollar popped higher after the central bank raised projections for cash rates to levels that would force the economy into a year-longrecession, while the Australian dollar slid as investors awaited US Federal Reserve minutes.
The kiwi dollar hit an intraday high of $0.6193, moving closer to its recent three-month top of $0.6207, although it faced resistance around 62 cents.
The Reserve Bank of New Zealand (RBNZ) on Wednesday not only raised its cash rate (OCR) by a record 75 basis points to 4.25% but also lifted its projection for the peak in rates to 5.5% from 4.1%, and expected rates to remain there into 2024.
The projected peak of 5.5% was well above even the most hawkish market wager and saw key two-year swap rates surge 29 basis points to 5.285%, the biggest daily jump since 2009.
“The statement was very hawkish, noting inflation was too high, that employment was above its maximum capacity, and that near-term inflation expectations had increased,” said Marcel Thieliant, senior economist at Capital Economics.
“As we had anticipated, the bank is willing to send the economy into recession: it is now forecasting four consecutive quarters of falling GDP from Q2 2023, with a cumulative decline in output of around 1%.”
Analysts at ANZ also massively revised up its forecast, expecting an additional 50 bp increase in April and a 25 bp one in May, which would take the peak to 5.75%.
The Australian dollar slid 0.1% to $0.6643, having also gained 0.6% overnight, as investors tempered risk appetite ahead of the release of minutes of the latest US Federal Reserve policy meeting later in the day for clues on the US tightening trajectory.
It hit a new eight-month low on the kiwi at NZ$1.0760 as traders bet on the divergence in local rates.
“Weighing on AUD/NZD has been the sharp narrowing of interest rate differentials between Australia and New Zealand,” said Carol Kong, senior currency strategist at CBA.
“The upshot is AUD/NZD will likely continue to underperform until China signals an exit from its zero COVID policy which may still be some months away given the worsening COVID outbreaks.”