SYDNEY: The New Zealand dollar soared to its highest in a year on Thursday after the Reserve Bank of New Zealand (RBNZ) kept interest rates steady, forcing those investors who had seen chances for a rate cut to cover their positions.
Some economists reckoned the central bank was near the end of its easing cycle, and the Kiwi surged more than a full cent and as far as $0.7139, a high not seen since June 2015. It has since stepped back a little to $0.7124.
Technical analysts said the Kiwi would face resistance at $0.7180.
The RBNZ held rates at a record low of 2.25 percent at its policy review, disappointing bears who had expected a cut.
"We had a 25 percent chance of a cut so we had to have some kind of rally," said Sean Callow, a senior strategist at Westpac Bank.
Investors trimmed the risk of an easing with the market seeing rates at 2.08 percent by November, from 2.01 percent before the policy review. The market is no longer fully priced for a cut.
"Today's statement suggests the RBNZ is closer to the end of the easing cycle," said Prashant Newnaha, a strategist at TD securities in Singapore. He added that the central bank's softer-than-expected language over currency strength suggested that was no longer a concern.
The Kiwi dollar also raced up 1.3 percent against the yen , while it flew to a one-year peak against the pound.
The Aussie dollar sank 1-1/2 cents to below NZ$1.0500 for the first time since November. It touched a peak of NZ$1.1263 late April.
The Kiwi's surge pulled the Australian dollar tot $0.7514, the highest since early May, before moderating to $0.7475.
The Aussie is up 1.5 percent so far this week, pulling closer to this year's peak above 78 cents. Immediate resistance is found around 75 cents.
Much of the Aussie's rise came after the Reserve Bank of Australia (RBA) wrong-footed doves with the omission of a clear easing bias in its monthly policy review statement.
"Both the RBA and RBNZ are on the sides of optimism and that is a powerful theme for the commodity currencies," said Westpac's Callow.
The RBA on Tuesday kept rates at a record low of 1.75 percent, taking a pause after last month's cut and recent data showing reasonable strength in the economy.
Australian government bond futures eased, with the three-year bond contract 2.5 ticks lower at 98.405. The 10-year contract flat at 97.8475, while the 20-year contract shed half a tick to 97.2450.
Recent changes in monetary policy expectations saw the premium between two-year Australian and U.S. Treasury bonds widen to 92 basis points, away from a decade low of 73 basis points touched late May.
(Editing by Simon Cameron-Moore)
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