New Zealand dollar jumps as RBNZ takes hawkish shift

The kiwi dollar jumped 0.9pc to $0.6460 on the surprise shift, taking it away from a recent three-month low at $0.6
12 Feb, 2020
  • The kiwi dollar jumped 0.9pc to $0.6460 on the surprise shift, taking it away from a recent three-month low at $0.6378.
  • The Australian dollar got caught in the updraught and firmed 0.2pc to $0.6726, putting a little distance between its recent decade low of $0.6657.

The kiwi dollar jumped 0.9pc to $0.6460 on the surprise shift, taking it away from a recent three-month low at $0.6378. Major resistance now lies at $0.6504.

The Australian dollar got caught in the updraught and firmed 0.2pc to $0.6726, putting a little distance between its recent decade low of $0.6657.

While the Reserve Bank of New Zealand (RBNZ) held rates at 1pc as widely anticipated, the statement omitted a previous line that it would add further monetary stimulus if needed.

Instead, it noted the risk posed by the coronavirus epidemic and said policy had room to adjust should the economic impact from the virus prove greater than expected.

The central bank also raised the forecast path for rates this year to 1pc, from 0.9pc previously, removing the chance of a cut.

"The rate forecast was raised, effectively signalling the easing cycle is over. Indeed, it forecasts one hike by late 2021," said Imre Speizer, Westpac's head of NZ strategy.

"Overall, it looks like the RBNZ expects to keep the OCR on hold this year, unless coronavirus blows up into something severe for New Zealand."

Markets quickly scaled back wagers on a further easing with a quarter-point move at the next meeting in March put at less than 10pc.

A move by August was priced at a 40pc probability reflecting the risk the fallout from the coronavirus could yet hit harder and last longer than currently thought.

Recent data from New Zealand has surprised on the firm side, with the housing market and consumer spending strengthening and the government set to expand public investment.

The Reserve Bank of Australia (RBA) has also surprised many by sounding less inclined to ease further, citing risks super-low rates would only encourage more borrowing at a time when home prices were already rising sharply.

Investors assumed the RBNZ's shift would also lessen pressure on the RBA to ease, at least at the margin, and lengthened the odds on a further cut.

Futures imply only a 16pc chance the RBA will ease by April , rising to 56pc by June.

Australian government bond futures eased, with the three-year bond contract off 3.5 ticks at 99.260. The 10-year contract fell 4.5 ticks to 98.9250.

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