Hawkish Surprise From RBNZ Sends Kiwi Flying

The RBNZ delivered a hawkish surprise, as it announced an imminent halt to its LSAP programme. The decision caught many off guard, given the RBNZ's aversion to tweak policy at non-MPS meetings, resulting in yet another round of hawkish repricing of future OCR path. A 25bp hike by the end of the November meeting is now fully priced in, with implied odds of an earlier hike in August sitting around 70% (as per BBG WIRP tool). In addition, ANZ and ASB brought forward their forecasts of the next hike to August, while Westpac flagged an increased risk of that scenario coming to fruition. The RBNZ's hawkish turn sent the NZD rallying across the board, with a usual degree of trans-Tasman spillover lending support to the AUD.

• NZD/USD pierced the round figure of $0.7000 and rose to a weekly high ($0.7023), with NZD/USD overnight volatility moving further away from a four-month peak printed on Wednesday.
• AUD/NZD tumbled to its lowest point in six weeks, as the Australia/New Zealand 2-Year swap spread tested levels not witnessed since early '16. A sense of concern about the virus situation in NSW continued to linger.
• The DXY ground lower from the off, trimming some of its post-CPI gains. The greenback was the worst G10 performer amid a mixed showing from U.S. e-minis.
• Sterling remained somewhat wobbly as UK PM Johnson's decision to lift remaining Covid-19 restrictions despite a surge in infections generated some angst.
• UK inflation data, EZ industrial output and remarks from ECB's Schnabel & BoE's Ramsden take focus in Europe. In America, Fed Chair Powell testifies to lawmakers, while the BoC deliver their MonPol decision.