New Zealand Dollar Falls as RBNZ Talks Down Rate Hike Outlook

The RBNZ chief said that although “the level of the [interest rates] is still very supportive of economic activity” even after today’s increase, “pace and extent of further [rate hikes] is likely to be more moderate than was projected” as recently as June. Speaking specifically about the exchange rate, Bollard said, “The New Zealand dollar has appreciated in recent weeks. This appreciation is inconsistent with the softening in New Zealand’s economic outlook and moderation in our export commodity prices.” Commenting on the outlook for prices, Bollard noted that “government-related price changes are likely to temporarily push annual CPI inflation above 3 percent.” adding the RBNZ does not expect this to have a lasting impact on underlying price growth, thereby deflating any bets on accelerated rate hikes as the data crosses the wires in the months ahead.

The Kiwi fell against all of its major counterparts, down nearly 1 percent versus the spectrum of major currencies. Interestingly, the New Zealand unit proved most resilient against its Aussie counterpart, down by a relatively small 0.6 percent after yesterday’s disappointing Australian CPI data dashed hopes for further tightening in the largest antipodean country. Today’s rate hike was widely expected, with a Credit Suisse gauge of priced-in expectations showing traders saw a 98 percent chance of an increase ahead of the announcement.