NZD Crumbles After Dovish Review
The New Zealand dollar (NZD) fell sharply in response to the Reserve Bank of New Zealand's (RBNZ) recent review, which was seen as dovish relative to expectations. The RBNZ raised its official cash rate by 25 basis points to 2.75%, maintaining a tightening bias but indicating that it does not intend to take policy into restrictive territory. The Bank's assumed neutral rate relevant for the policy horizon is 3.5%.
The NZD was broadly weaker after the RBNZ's review, with the currency dropping from 0.5890 to reach an overnight low just above 0.58 before recovering back towards 0.5850 due to a weaker US dollar. The RBNZ's easy policy setting relative to other major economies such as the US and Australia remains a key headwind for NZD performance in the near term.
In contrast, the Canadian dollar (CAD) outperformed after the Bank of Canada held its policy rate steady at 2.25%, with Governor Macklem stating that the longer situation in the Middle East persists, the greater the chance that inflation feeds through elsewhere in the economy.