The NZDUSD opens sharply higher at 0.8690 this morning, post the RBNZ rate hike.
The Reserve Bank of NZ raised the Official Cash Rate (OCR) by 0.25% to 3.25%, as widely expected. What caught the market by surprise, however, is the RBNZ did not infer a slower pace of rate hikes going forward in response to falling commodity (dairy in particular) prices, reduced business confidence, and reports that house price inflation had mitigated.
In fact, the RBNZ stated rates need to be 'normalised' in the face of expected inflationary pressure - this implies an eventual OCR rate somewhere between 4.0 to 4.5%. The NZD surged higher across the board, and the upwards momentum continued overnight.
Forget about the 'rock star economy', in a world of near-zero interest rates, NZ's OCR of 3.25% is a 'rock star' interest rate. This is attractive to yield-seeking investors, particularly in the euro-zone whose overnight deposit rate is negative 0.1% - the NZDEUR hit an overnight high of 0.6415, a level last since 13-months ago. The NZD has also made solid gains against all other major currencies.
The USD slipped lower yesterday after the release of weaker than expected US Retail Sales and Weekly Jobless Claims, although the prior month's retail sales were revised higher.
Global equity markets were lower on the day - Dow -0.8%, Nikkei -0.6%, Shanghai -0.3%, FTSE +0.1%, DAX -0.1%
Gold prices are 1% higher at USD$1273. Oil prices jumped by 2.8%.
The current indicative mid-rates are:
NZDUSD 0.8690
NZDEUR 0.6415
NZDGBP 0.5140
NZDJPY 88.40
NZDAUD 0.9225
NZDCAD 0.9435
Business NZ Manufacturing Index & the Food Price Index will be released this morning.
Chinese Industrial Production, Fixed Asset Investment, and Retail Sales all hit the tapes at 5:30pm, followed by US Consumer Sentiment overnight.
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Dan Bell is the senior currency strategist at HiFX in Auckland. You can contact him here »
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