NZD collapses as RBNZ hints at ending its tightening cycle

Daily Currency Update

The New Zealand dollar was the worst-performing major through trade on Wednesday, pummeled by investors following a dovish RBNZ policy update and a definitive risk-off move. As anticipated the RBNZ lifted rates by 25 basis points bringing the OCR to 5.5%, yet surprised markets by hinting that this was the last rate adjustment within this cycle and a peak had been reached, The Monetary Policy Committee note it is “now confident that monetary policy is restrictive enough to meet inflation objectives”. With the NZD strengthening against key crosses over the last fortnight on expectations the cash rate would peak at 5.9% markets rushed to correct positions. The NZD tumbled against all crosses but most notably is down 2.3% against the USD, sliding off highs above US$0.6250 to mark fresh 2-month lows at US$0.6095 while slumping 1.3% lower against the AUD, giving up 0.94 to trade below 0.9350. With retail sales plunging earlier in the day and consumer confidence falling toward GFC levels there are clear signs to suggest the domestic economy has now entered recession. While not confirmed in GDP data other macro metrics suggest lagging data will show the economy entered recession in Q4. With the RBNZ raising rates by 200 points since then, there is little scope for positivity leading into the second half of the year.
With little of note on today’s macro ticket, our attentions remain on broader risk drivers. A rebound in appetite should see the NZD climb back to US$0.6150 while an extension in this risk-off push could see the NZD test the March low of US$0.6085.