- The New Zealand dollar records an outstanding performance in the murky currency markets.
- Reserve Bank of New Zealand said easing policy again was not urgent, causing the dollar to rise more than 1% and short-dated bond yields and swap rates to surge higher.
- Intensifying unrest in Hong Kong raises the dollar’s safe-haven appeal.
On Wednesday, the New Zealand dollar recorded an outstanding performance in the murky currency markets. It was set to notch is the most significant gains in a year after the central bank stunned investors by holding on the interest rates.
Banks and hedge funds had built up massive short positions in the kiwi. The local dollar is known before the rate decision on the expectation that the U.S-China trade war would hurt the export-oriented economy’s prospects.
But after this year’s interest rate cuts, the Reserve Bank of New Zealand said that easing policy again was not urgent. The decision caused the dollar to rise more than 1%, and short-dated bond yields and swap rates surged higher.
“Like much of the market, we had expected an RBNZ cut today,” UBS strategists said in a daily note.
“Signs of progress in U.S.-China trade talks have soothed global markets and policymakers alike,” they added, expecting the local dollar to strengthen to $0.63 by end-2019.
The kiwi was up 1.3% at $0.6407 against the broadly firm USD, comfortably on track for its biggest daily rise since end-October 2018.
Almost all analysts expected a cut in the 1% benchmark to a record-low 0.75%. The futures markets had priced in a better-than-75% chance of the rate cut as slack spending, and global slowdown held New Zealand economic growth at a six-year low.
The U.S.D remains the firm against its rivals as unrest in Hong Kong intensifies
Elsewhere, the U.S.D remained widely firm against its competitors. Weak risk appetite is partly because of the intensifying unrest in Hong Kong which raised the dollar’s safe-haven appeal.
The U.S.D edged 0.1% higher at 98.41, holding just below a one-month high of 98.423 hits in the previous session. The market focus has turned towards a two-day testimony by the U.S Federal Reserve Chief Jerome Powell later in the day.
The GBP remained widely steady around the $1.2840 line as the latest opinion polls forecast a lead for the ruling Conservative Party.