Expectations that the Reserve Bank of New Zealand will turn more hawkish have been intensifying for some time. Nevertheless, today's announcement from RBNZ turned out to be much more hawkish than market expected. While RBNZ left interest rates unchanged, it said that the scale of QE programmes will be reduced. Bond buying under the LSAP (Large Scale Asset Purchase) programme will be halted by July 23. RBNZ members agreed that major risks relating to deflation and high unemployment have receded and a phrase saying that time and patience are needed to achieve inflation and employment goals was removed from the statement.
Major Antipodean banks forecasted before today's meeting that RBNZ may decide to hike rates in November and interest rate derivative market began to price-in such a move. Following today's meeting, derivative markets fully priced in a rate hike in November. Moreover, market odds for a rate hike as soon as the next meeting (August 18) jumped above 70%! It looks like RBNZ may be the first central bank from developed countries to deliver a post-pandemic rate hike and begin a policy normalization process.
Hawkish RBNZ massively boosted New Zealand's currency. NZD outperforms all other G10 currencies and in most cases gains near 1%. NZDUSD bounced off the support zone ranging around 0.6950 handle. Pair is testing the resistance zone marked with the 23.6% retracement of a recent downward move (0.7020 area). Clearing this resistance would pave the way for a test of the mid-term downward trendline.
Source: xStation5
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