Even though the RBNZ didn't announce any significant changes in monetary policy, currency and interest rate markets jumped. That says more about traders getting assumptions wrong than the RBNZ

Financial market traders (and some analysts) got caught out big time today (Wednesday).

When the RBNZ Governor released his February Monetary Policy Statement there was a sudden, sharp reassessment.

The NZD jumped +1c. Bond and swap rates leaped +10 bps.

But the RBNZ's position didn't really change much at all. They laid out a set of economic facts that shouldn't have surprised anyone.

Except, they were surprised.

The reaction however isn't so much about what happened today.

It is a back-track on how they reacted to the RBA signals at the start of the month.

Traders and analysts have been caught in an old group-think, just assuming that we are a seventh state of Australia. Today they were reminded we are not.

New Zealand's currency and interest rates were marked lower when RBA Governor Lowe revealed his more dovish take on Australia's prospects, dropping again when the RBA released their minutes.

In hindsight it is easy to see this wasn't 'analysis', just an assumption about New Zealand and its relationship to Australia.

Governor Orr's 'up-or-down' stance makes perfect sense given the data released, and on-hold-for-longer actually came with a suggestion of more-likely-up. That is because it is the local data that seems in good shape; it is the international risks that balance that off.

And that is in contrast to Lowe's local data concerns in Australia.

So a sharp reassessment took place today in both the bond and currency markets.

But just so we don't over-egg how big that reassessment has been, the NZD just went back to where it was before Lowe's settings. On February 5, the NZD was at 68.7 USc. It then retreated to 67.2 USc. And today it is back to 68.4 USc. Lowe has been discounted in the pricing of the NZD.

In the bond markets, the NZ Govt 10yr was yielding 2.21% on February 5, pre-Lowe. Post Lowe it fell to 2.11%. Post Orr it jumped back to 2.21%. Again, Lowe has been discounted for New Zealand.

Memo to traders (and some analysts): New Zealand is a separate economy. Small yes, but Adrian Orr is pulling the levers here, not Philip Lowe.

Daily exchange rates

Select chart tabs »
The 'US$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'AU$' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'TWI' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥en' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '¥uan' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The '€uro' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'GBP' chart will be drawn here.
Loading...
Daily benchmark rate
Source: RBNZ
The 'Bitcoin' chart will be drawn here.
Loading...
USD 
NZD
End of day UTC
Source: CoinDesk

Daily swap rates

Select chart tabs »
The '1 year %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '2 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '3 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '4 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '5 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '7 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA
The '10 years %' chart will be drawn here.
Loading...
Opening daily rate
Source: NZFMA

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

3 Comments

Excellent piece David – thanks!

At first blush this afternoon I was wondering what on earth was going on.

I also was surprised at market reaction to a non-event , thanks for your perspective.

It just goes to show that the currency cowboys were expecting a less neutral stance rather than an up or down comment going out 2 years - the sudden move in the currency tells you there were a lot of shorts who suddenly covered