New Zealand dollar pops higher as RBNZ holds the line – Markets

SYDNEY: The New Zealand dollar climbed to a three-week high on Wednesday as its central bank reiterated policy needs to be restrictive for an extended period after holding rates steady, a result that sent the kiwi higher on its Australian cousin.

The kiwi dollar scaled an intraday high of $0.6077 before running into selling pressures and was last at $0.6069. It is battling sellers as resistance remains heavy at the 200-day moving average of $0.6067.

The Reserve Bank of New Zealand (RBNZ) held the cash rate at 5.5% as widely expected on Wednesday.

In a short statement, it repeated its warning that monetary policy needs to be restrictive for an extended period to bring inflation back to target.

Overall, market moves were subdued.

Two-year swap rates held at 4.905%, down 2 ticks for the day and investors continued to bet the first rate cut will come in August, with a 92% conviction, although that compared with more than fully priced in before the decision. They now see a total easing of 60 basis points this year, compared with 63 bps before.

“Today’s decision by the RBNZ … was never going to amount to much. It was the shortest statement we’ve ever seen. Nothing to see here,” said Jarrod Kerr, chief economist at Kiwibank.

Australia, NZ dollars slip but set for first weekly gain in a month

“Some in the market are calling for cuts to commence in August. That’s premature in our view,” said Kerr, adding that he still sees the first cut in November.

The kiwi gained on its Australian counterpart after hitting a 10-month low recently as markets bet on a more aggressive rate cutting cycle in New Zealand on economic weakness.

The Aussie lost 0.3% to NZ$1.090, about the lowest in a week.

Against the greenback, the Australian dollar was looking comfortable at $0.6625, after gaining 0.3% overnight to hit a one-month high of $0.6644. Resistance is now at the March high of $0.6667, with much riding on the US consumer inflation report later in the day.

It also hovered near nine-year highs at 100.57 yen thanks to demand from carry trade where investors borrow the yen at zero rates to buy higher yielding currencies.