SYDNEY: New Zealand’s dollar jumped on Wednesday after an unexpectedly big interest rate hike by its central bank, while the Australian dollar gave up earlier gains after the Reserve Bank of Australia hit the pause button on rate hikes - for now.
The kiwi rallied as much as 1.1% to $0.6383, before retreating a little to $0.6347, as markets shifted focus to the bank’s dovish forward guidance after the rate hike shock.
Resistance now lies at $0.6390, while support is at $0.6270.
The Reserve Bank of New Zealand on Wednesday raised its official cash rate (OCR) by 50 basis points to a more than 14-year high of 5.25%, shattering market expectations and economists’ forecasts for a 25 basis point hike.
Going forward, the RBNZ said “maintaining the current level of lending rates” for households and businesses is necessary to bring inflation down, compared with the previous guidance that “the OCR still needs to increase”.
“In its forward guidance the RBNZ removed its explicit tightening bias, and instead signals data dependence going forward,” said Andrew Boak, economist at Goldman Sachs, adding that the language suggested a fairly neutral and data-dependent policy stance.
Australia, NZ dollars drift lower as greenback gains, RBA rate decision looms
“We expect the OCR to remain on hold at 5.25% over the remainder of this year.” Two-year swaps jumped 11 basis points to 5.107%, but remained well below the March peak of 5.53%.
The Aussie, which had initially risen along with the kiwi, gave up gains and was last 0.3% lower to $0.6734, snapping a major support level of the 200-day moving average at$0.6750.
Investors sold the Aussie against the kiwi as the policy divergence between the two central banks grew, with the Australian currency falling 0.7% to NZ$1.0611 on Wednesday, the lowest since late December.
After pausing for the first time after 10 straight rate hikes, the Reserve Bank of Australia governor Philip Lowe said on Wednesday a pause did not imply that increases were over.
However, he also conceded that policymakers were not 100% sure interest rates would need to rise again, and in the past the bank had waited a while in rate cycles after moving quickly on rates to assess the pulse of the economy.