NZ Dollar Rebounds as Rate Hike Expectations Remain High
The New Zealand dollar made a recovery on Friday after experiencing an overnight decline. The kiwi edged up by 0.2% to $0.5865, having fallen as low as $0.5822 due to a drop in one-year inflation expectations.
Data released for July showed that New Zealand's manufacturing activity continued to expand, and the Reserve Bank of New Zealand maintained its loan-to-value ratio settings despite the ongoing weakness in the housing market.
The market remains confident about an impending rate hike, with 85% pricing in a September increase. This expectation is driven by the RBNZ's repeated warnings that policy needs to become less stimulative.
Across the Tasman Sea, the Australian dollar remained steady at $0.7061, having been mostly unchanged overnight. The Reserve Bank of Australia kept interest rates steady at 4.35% for a second time this week, with Governor Michele Bullock suggesting that rates may need to rise again due to external risks and poor productivity growth.
Stephen Smith from Deloitte Access Economics expressed caution about the RBA's decision-making process, stating 'The RBA is walking a narrow path.' Markets are still pricing in a 70% chance of one last move to 4.60% by early next year.