The New Zealand dollar fell sharply on Wednesday after the Reserve Bank of New Zealand held its key rate at 2.75%, when markets had expected a hike. Currency strategists at BBH said the less hawkish stance should keep the New Zealand dollar on the defensive.
The New Zealand dollar fell sharply on Wednesday as markets reacted to an unanticipated interest rate decision from the country's central bank. By 8 a.m. ET, the currency was down 1.3% intraday against both the U.S. and Australian dollars. It had also fallen more than 1% versus the British pound, Japanese yen and euro.
ActionForex put the pair's drop at 1.6% in immediate reaction to the decision. Today's drop to 0.5582, the lowest in two weeks, came with a break below the 20DMA at 0.5633.
A four-to-three vote keeps the rate at 2.75%
The RBNZ's Monetary Policy Committee voted by a slim majority of four to three to keep its key rate at 2.75%. Traders had been pricing in a rate hike as nearly certain, and economists polled by Reuters had overwhelmingly forecast rates to rise.
Third-quarter annual inflation hit 3.7%, down from 4.1% in the previous quarter and lower than expected. The central bank, which has an inflation target range of 1% to 3%, raised rates twice this year, in July and September.
Markets pare hike bets and bond yields fall
LSEG data last showed markets pricing in a 40.8% chance of a 25-basis-points hike in December, down from a near three-in-four chance just hours earlier. The yield on the 2-year government bond fell by 11 basis points, while the benchmark 10-year yield pulled back by 3 basis points.
Currency strategists at BBH said the RBNZ's less hawkish stance relative to other central banks "should keep NZD on the defensive." They noted that all members retained a tightening bias despite the vote split.
Investors now turn to the Fed policy meeting, with the central bank widely expected to stay on hold, according to ActionForex.
Sources: CNBC, ActionForex
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