NZD Falls Despite RBNZ Announcing 50 Basis Point Rate Hike

Heading into today’s European trading session, the risk tone is mixed. Asia-Pacific indices are mostly positive, although volatility measures are elevated and safe-havens mixed.

Leading Asia-Pacific indices to the upside is the Nikkei 225 at +2.00%, followed by the Topix at +1.44%, the Hang Seng at +0.73% and the ASX 200 at +0.34%. The CSI 300 is down on the session at -0.04%.

In the FX complex, the dominant focus was NZD, following the highly anticipated monetary policy announcement from the RBNZ. The central bank announced a 50 basis point rate hike, taking the Official Cash Rate (OCR) to 1.50%. Following the more aggressive hike than many were expecting, NZD strengthened across the board. However, NZD strength was short-lived, and the currency quickly sold off as the central bank’s outlook on the OCR remained unchanged, suggesting it is unlikely to maintain its current aggressive approach to policy tightening.

In contrast to NZD and leading to the upside is CAD, as the market’s attention now turns to the BoC, who are also expected to announce a 50 basis point hike in today’s US session. Consequently, NZDCAD has notably underperformed in recent trade, with the currency pair now trading below the 0.86 handle.

Indeed, the BoC’s latest policy announcement will be today’s final high-impact announcement. Until then, however, expect current themes to remain in place, including the RBNZ’s policy announcement, the Ukraine/Russia war and the prevailing risk tone.