PoundSterlingLIVE -
- GBPNZD rests near three-year highs
- NZDUSD extends July rally
- RBNZ guidance shows little rush to hike again
- But Westpac says another hike to come in Aug.
The New Zealand Dollar saw some volatility within limited ranges after the Reserve Bank of New Zealand (RBNZ) announced it would keep interest rates unchanged and gave little evidence it was ready to resume raising interest rates again anytime soon.
New Zealand bond yields - a key consideration for the NZ Dollar - declined as investors lowered expectations for the prospect of further hikes after the RBNZ signalled comfort with the OCR at 5.50%.
"Financial markets wound back expectations for a further hike following the meeting. A further 25bp hike is now around 50% priced," says Kristina Clifton, an analyst at CBA.
The RBNZ said in a statement it is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range of 1 to 3% per annum.
The Pound to New Zealand Dollar exchange rate spiked but promptly retreated in the hour following the decision before stabilising again. The pair ultimately remains near three-year highs reached on the prior day and there is little in the RBNZ's guidance that would suggest the uptrend has been challenged by the central bank.
The New Zealand Dollar-U.S. Dollar exchange rate has however been on the rise in July and the pair rose to its highest level since June at 0.6239 in the wake of the RBNZ.
Against the Aussie, a period of short-term consolidation extends with AUD/NZD briefly spiking to 1.0832.
Guidance from the RBNZ leads economists at CBA to maintain an expectation that 5.50% will be the peak in this tightening cycle.
"If we are correct, a further unwinding of financial market pricing for RBNZ rate hikes can weigh on NZD/USD and support AUD/NZD," says Clifton.
Such an outcome in these two exchange rates would offer further mechanical support for the upward-trending GBP/NZD.
"There is little here for either the hawks or the doves," says Kelly Eckhold, an economist at Westpac. "The kiwis are comfortably resting in the nest."
Eckhold notes the commentary as being short, indicating a less controversial discussion at the MPC, and indeed there was a consensus for unchanged rates this time around.
"Keeping the commentary short probably also reflected a desire to not say anything that might disturb expectations, as we had indicated would be likely in our MPR preview," he adds.
Westpac remains of the view that the OCR will be increased by 25 basis points to 5.75% at the August Monetary Policy Statement as by then more important data will have been released that will allow another move at the central bank.
Data to watch this month are CPI inflation for the second quarter (July 18) and the labour market report (August 02) which should give markets more insight into the persistence of core inflation pressures.
"Partial indicators suggest the labour market has not cracked yet. This raises the potential that the RBNZ will need to upgrade their growth forecasts for this year closer to those of our own," says Eckhold.
An original version of this article can be viewed at Pound Sterling Live