RBNZ Cautious Guidance Hits New Zealand Dollar

The New Zealand Dollar (NZD) took a hit after the Reserve Bank of New Zealand's (RBNZ) latest policy meeting. Despite delivering its second consecutive 25bps rate hike, the central bank signalled a cautious and gradual path for future tightening.

RBNZ Governor Anna Breman highlighted uncertainty over the timing of further OCR increases, indicating that the bank will consider the effects of the two hikes already implemented and new information affecting the medium-term inflation outlook. This guidance disappointed markets that had anticipated a faster pace of tightening.

The probability of another hike in October has fallen to around 36% from 65% prior to the meeting. The RBNZ's updated projections for the policy rate were left largely unchanged, revealing an average OCR of 2.81% in Q4 before rising to 3.07% by the middle of next year.

The kiwi has weakened sharply even after the RBNZ delivered its second consecutive 25bps rate hike, with the currency failing to break above the 0.5900-level. The RBNZ's cautious forward guidance implies that the central bank may not hike again as soon as the next policy meeting.