New Zealand dollar slips as rate hike proves anti-climate
SYDNEY, Oct.6 (Reuters) – The New Zealand dollar eased on Wednesday after the country’s central bank raised interest rates for the first time in seven years and said further measures were likely, but also highlighted the significant uncertainty caused by the coronavirus pandemic.
The Reserve Bank of New Zealand (RBNZ) raised rates by a quarter point to 0.5%, a move well announced in advance. The 20 analysts in a Reuters poll expected an increase.
The statement was balanced by other measures expected over time, but also by a recognition that the pandemic had longer-term implications for economic activity.
This limited market reaction, with slightly firmer swap rates and the kiwi at $ 0.6944 after a brief spike at $ 0.6980. It has support around $ 0.6860, with resistance at $ 0.6981 and $ 0.7030.
The market still sees rates reaching 1.0% in April and 1.5% in October.
Kiwibank chief economist Jarrod Kerr argued the kiwi is undervalued given the strength in global commodity prices and the outlook for local rates.
âThe RBNZ is likely to be a year ahead of the US Federal Reserve, and maybe two years ahead of the RBA,â he said.
“The widening of interest rate differentials, in favor of New Zealand, indicates a further rise in the Kiwi dollar towards $ 0.7500 by the end of the year.”
The Reserve Bank of Australia (RBA) plans to hold rates at 0.1% until 2024, reflecting years of weak domestic wage growth and inflation.
This outlook kept the Aussie stuck around $ 0.7275, with strong resistance at 0.7305 / $ 15.
While there had been a few calls for rate hikes to temper raging house prices, the RBA argued that macroprudential rules were the best tool.
Australia’s banking watchdog APRA has done the right thing by telling banks to increase the mortgage sustainability cushion.
âToday’s APRA announcement should be modestly bond-friendly and, other things being equal, take the pressure off the RBA to adjust its yield curve control and forecast,â Su said. -Lin Ong, Head of Australian Fixed Income Strategy at RBC Capital Markets.
“It may be worth a few basis points in under yield, especially since it seems like this is just the first step.”
Bonds could benefit from the help, as global yields have risen in recent weeks as inflation may be more persistent than previously thought.
Australian 10-year yields were their highest since mid-June at 1.575%, and underperformed Treasuries with a spread from -7 basis points a week ago to +2 basis points .
New Zealand 10-year bond yields are already up 2.05%, levels that have not held up since early 2019. (Edited by Kenneth Maxwell)