NEW ZEALAND: After a hawkish tilt from the country's central bank, the New Zealand dollar recouped early losses and achieved a large gain on Wednesday, as the greenback rallied off a one-month low amid a stabilisation in Treasury yields.
The Reserve Bank of New Zealand (RBNZ) lifted its key interest rate by half a percentage point, as expected, but gave more hawkish guidance on its future policy path, the so-called OCR track, stating that a larger and earlier boost lessens the chance of persistent inflation. The kiwi recovered from 0.53 percent losses to gain 0.83 percent ahead of the rate decision, reaching a three-week high of $0.6514. It recently traded at $0.6501, up 0.63 percent.
"The Reserve Bank's new track exceeded market pricing, which is extremely unusual," said Imre Speizer, a Westpac strategist, who expects the kiwi to extend advances to $0.66 in the next 24 hours. "This was a major hawkish surprise that should not be dismissed lightly."
Meanwhile, the dollar index, which compares the greenback to six major currencies, rose 0.2 percent to 101.95, moving away from its overnight low of 101.64, which was the lowest level since April 26. The index fell 1.23 percent in the first two days of this week, taking it even further away from the nearly two-decade peak over 105 reached in mid-month, as traders positioned for a slightly less aggressive path of Federal Reserve rate hikes.
After falling to an almost one-month low of 2.718 percent overnight, the 10-year Treasury yield moved up to 2.7685 percent in Tokyo trading. To trade at 126.985 yen, the dollar gained 0.12% against its Japanese counterpart, which is extremely sensitive to fluctuations in long-term Treasuries. The previous session saw the yen fall to a more than five-week low of 126.37 yen.