NZD Jumps On Surprise RBNZ Move; BoC Rate Decision


Rates as of 0500 GMT

Market Recap

Happy Bastille Day! I was a History major in college. The most difficult course I took was French Revolution. So this day is tattooed on my heart.

Well, I thought the Reserve Bank of New Zealand RBNZ was likely to turn more hawkish at this meeting and that it would be positive for NZD, but I didnt anticipate this ind of action. Luckily Bloomberg said it was a surprise move, meaning I wasnt the only one caught out. The statement following the meeting was titled Monetary Stimulus Reduced. They said they would stop their asset purchases under the Large Scale Asset Purchase LSAP program by July 23rd next Friday. The Official Cash Rate OCR and the Funding for Lending Programme will be unchanged.

I had thought that they might be more hawkish in response to higher inflation, but in fact like many central banks around the world, they said they expected inflation to spike higher but that it would be the result of either oneoff factors, such as higher oil prices, or temporary factors having to do with the pandemic, such as supply shortfalls and higher transport costs.

No, the reason they turned more hawkish was because of the general improvement in the New Zealand economy. Recent data indicate the New Zealand economy remains robust, they said. They noted that Aggregate economic activity is above its preCOVID19 level and cited strong household spending, construction, and business investment.

Although they left the OCR unchanged, the market is…

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