NZD falters ahead of RBNZ policy update

Daily Currency Update

The New Zealand dollar slumped back below $US0.6250 Tuesday, underperforming amid a weaker risk backdrop. Ongoing debt ceiling negotiations continue to hang over the market while renewed concerns surrounding China's post-COVID recovery dampened demand for equities and risk assets. Concerns about China's weak industrial production growth post-COVID have prompted a steep correction in industrial metals with copper leading the downturn slumping 11% through the last month. With the yuan sustaining further losses against the USD the NZD, a proxy among major currencies, suffered.
Our attentions turn now to the RBNZ and its latest policy update. With price action across the domestic rates market showing clear signs of nerves and wide-ranging expectations for peak RBNZ policy, we are keenly attuned to today's outcome. The market is well positioned for a 25-basis point correction, though another 50-point hike is not out of the question with peak projections now comfortable above the RBNZ February high of 5.5%. Much of the market is pricing in a peak OCR of 5.9%. With the NZD elevated against a number of major counterparts, near-term yield expectations will be crucial in maintaining upward momentum.