Dollar Soars as Kiwi Slides 1% on NZ Central Bank Pivot
The US dollar strengthened to a two-week high on Wednesday, pinning major rivals to multi-week lows. The greenback's rise was driven by a sharp dovish pivot by New Zealand's central bank, which sent the kiwi plummeting over 1% to its lowest level since late-July.
The Reserve Bank of New Zealand delivered a 25-basis-point rate hike but paired it with unexpectedly dovish forward guidance. RBNZ officials signaled that an October rate increase is far from guaranteed and emphasized data-dependent flexibility.
Institutional desks responded by rapidly unwinding bets on consecutive rate hikes, pulling wholesale rates lower and undercutting yield support for the kiwi. The dollar index, which measures the greenback against a basket of six currencies, rose to 99.74, extending gains after Federal Reserve Chair Kevin Warsh's hawkish Jackson Hole address.
Despite weaker-than-expected US macroeconomic surveys, including a slight miss in July JOLTS job openings and a sub-50 contractionary reading in August ISM manufacturing, money markets maintained a 68% probability of a 25-basis-point Fed rate hike on September 16. The euro touched a near two-week low of $1.1576, while the Canadian dollar inched up ahead of the Bank of Canada's policy announcement.