NZD Plunges Despite Hawkish RBNZ Survey as Inflation Expectations Collapse

The Reserve Bank of New Zealand's (RBNZ) Survey of Expectations pointed to a September hike in interest rates and firmer growth, yet the New Zealand dollar (NZD) fell across the board.

Respondents expected a rate increase in September and saw the Overnight Cash Rate (OCR) climbing further over the following year, along with more optimistic views on growth and wage inflation. However, the market's reaction was driven by the 81-basis-point collapse in one-year-ahead Consumer Price Index (CPI) expectations.

The drop from 3.41% to 2.60% was an unexpected change that led to the NZD selloff, despite the hawkish rate path being largely priced in by markets.

Swaps had already accounted for roughly 90% of a September hike, leaving little room for another surprise in terms of interest rates.