NZD Welcomes Hawkesby's Hawkish Remarks

An interview with RBNZ Asst Gov Hawkesby did the rounds Tuesday, lending support to NZD. The official told Bloomberg that the Reserve Bank's decision not to raise the OCR last week was motivated by difficulties with communicating a rate hike "as the country went into lockdown" rather than by the outbreak of Covid-19. Hawkesby added that policymakers considered raising the OCR by as much as 50bp, while "our decisions around monetary policy aren't going to be tightly linked to Covid" as "we're going to be in an environment where we need to live with Covid in its various forms".

• Hawkesby signalled that the October meeting will be "a live meeting," even as it is just an interim (i.e. non-MPS) Monetary Policy Review. Whether a 50bp rate hike will be on he table in October will depend on "what have we learned about the economy in the meantime," with inflation expectations under close scrutiny.
• Separately, RBNZ Dep Gov Bascand told MNI that the Reserve Bank expect only a short lockdown and stand ready to start tightening policy in October.
• RBNZ Chief Economist Ha told interest.co.nz that the Reserve Bank are maintaining their tightening bias despite the continued spread of new Covid-19 infections and reiterated that the OCR remains their preferred policy tool.
• New Zealand detected 41 new Covid-19 cases in the community on Tuesday, putting the total size of the cluster at 148. Auckland will remain under Level 4 lockdown at least through next Tuesday, with the rest of the country set to remain in level 4 at least through Friday.
• Comments from RBNZ members triggered some hawkish RBNZ repricing Tuesday and pushed NZD/USD higher. Broadly positive risk sentiment lent additional support to the pair.
• The rate last sits at $0.6951, little changed on the day. A rally above the 50-DMA at $0.6985 would bring Aug 17 high of $0.7029 into view. Conversely, a pullback under Aug 20 low of $0.6805 would represent a significant bearish signal.
• As a reminder, New Zealand's trade balance for the month of July comes out shortly.