The New Zealand dollar posted its worst daily drop since June after the Reserve Bank of New Zealand paired a 25-basis-point hike with unexpectedly dovish guidance. The Canadian dollar moved the other way, gaining after the Bank of Canada held rates steady but warned that inflation risks have increased.
The New Zealand dollar fell over 0.7% against the U.S. dollar on Wednesday, its worst day since June 23. The move came after the Reserve Bank of New Zealand delivered a 25-basis-point rate hike but paired it with unexpectedly dovish forward guidance.
Kiwi sinks as RBNZ signals a pause
RBNZ officials adopted deliberate ambiguity about future tightening, signaling that an October rate increase is far from guaranteed and emphasizing data-dependent flexibility. The hike itself, which lifted the Official Cash Rate to 2.75%, had been fully priced in by markets, so the currency's reaction hinged on the guidance that followed.
Governor Anna Breman said afterward that gradual removal of monetary stimulus remains the appropriate setting to return inflation to target while still supporting growth and employment. She added that after two consecutive OCR increases, the bank can probably take time to assess how the tightening delivered so far is flowing through the economy. Breman also flagged that ongoing high fuel prices mean the risk of indirect effects on inflation is now larger than the bank had previously thought, a line that keeps the door open to further action.
Loonie firms as BoC flags inflation risk
The Canadian dollar, meanwhile, gained 0.4% after the Bank of Canada held rates steady. The BoC held its overnight rate at 2.25%, warning that risks to inflation had increased and that a trade war with the U.S. had made the growth outlook more uncertain. BoC Governor Tiff Macklem noted that since the July decision, the Middle East conflict appeared no closer to resolution, and that new U.S. tariffs could pose risks to a rebound in growth, though he didn't expect the levies to have a large direct impact on overall economic activity.
The hold and the accompanying warning pushed market expectations toward a greater chance of a rate hike later this year. USD/CAD fell around 0.40% on the day, tracking the loonie's gain.
Dollar backdrop stays mixed
The U.S. dollar index was down 0.1% to 99.60 on Wednesday after climbing 0.3% the previous session, as a rout in sovereign debt eased and traders moved back into equities. Against that backdrop, the U.S. ADP report showed private employers added 38,000 jobs in August, below expectations for 48,000 and the slowest pace of hiring since January, with traders now turning toward Friday's nonfarm payrolls report.
Overall, the dollar ended the day mixed, trading lower against the yen, the loonie and the Australian dollar but higher against the euro, sterling, the Swiss franc and the kiwi.
Sources: Investing.com, investingLive, investingLive
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