Kiwi Emboldened As RBNZ Opens Door To More Aggressive Policy Tightening

The kiwi dollar bounced off session lows to become the best G10 performer after the RBNZ raised the OCR by half a percentage point and reaffirmed the need to front-load tightening as inflation-fighting takes priority. In line with the "stitch in time" logic outlined in the previous monetary policy review, the Reserve Bank suggested it will need to remove heat from the economy sooner and faster, before eventually returning the key interest rate to more neutral settings. Accordingly, the Committee charted a steeper OCR track, with a higher peak of 3.95%, easing off only in the second half of 2024 once the Reserve Bank achieves its goals.

• NZD strength spilled over into its Antipodean cousin AUD, to some degree. AUD/USD re-tested session highs post-RBNZ, while AUD/JPY rose to a fresh intraday peak.
• AUD/NZD retreated to a new monthly low in sync with a sharp decline in AU/NZ 2-year swap spread. The pair bottomed out within touching distance from its 50-DMA, which has remained intact since March.
• The broader commodity-tied FX space found poise as crude oil prices firmed, while an uptick in U.S. e-mini futures indicated improvement in risk appetite. Better sentiment dampened demand for traditional safe havens JPY & CHF, which outperformed on Tuesday.
• Offshore yuan is on track to snap its four-day rally as worrying COVID-19 developments in Beijing and Tianjin pulled the rug from under the redback.
• Final German GDP & flash U.S. durable goods orders will take focus later in the day. The central bank speaker slate is tightly packed and dominated by ECB members.