Quick Look:
- Hawkish FOMC Meeting Minutes: The FOMC revealed a cautious stance on rate cuts, strengthening the US dollar.
- NZD/USD Volatility: Following the FOMC release, NZD/USD fell to 0.6080, indicating a significant market reaction.
- RBNZ’s Monetary Policy: Despite holding rates at 5.5%, RBNZ’s hawkish statement increased the likelihood of a rate hike.
On Wednesday, the Federal Open Market Committee (FOMC) released its Meeting Minutes, revealing a cautious stance on potential rate cuts. This hawkish outlook indicates that Fed policymakers are less inclined to reduce rates than investors had hoped. As a result, it has caused a shift towards risk-off bids and strengthened the US dollar.
The FOMC statement explicitly noted that Fed policymakers remain more hawkish than investors have been hoping for, and the odds of a September rate cut have eased even further. This declaration disappointed market participants who were anticipating a more dovish approach.
NZD/USD Drops 0.80% to 0.6080 After FOMC Minutes
Following the release of the FOMC Meeting Minutes, the NZD/USD currency pair experienced significant volatility. Initially, NZD/USD tumbled back to 0.6080, marking a one-week low and flirting with the 200-day Simple Moving Average (SMA) at 0.6073. This decline followed earlier peaks near 0.6150, indicating a sharp reversal as the day progressed.
Earlier on Wednesday, the NZD/USD pair had shown strength, climbing by 0.54% to trade at 0.6124 during the European session. The pair reached 0.6152 (an increase of 0.80%) in the Asian session following the Reserve Bank of New Zealand’s (RBNZ) meeting. However, the gains were short-lived as the market digested the implications of the FOMC’s hawkish stance.
RBNZ Keeps Rate at 5.5%, Hints at 60% Chance of Hike
The RBNZ also played a crucial role in the day’s events. Despite holding the cash rate steady at 5.5%, the RBNZ’s monetary policy statement was notably hawkish. The statement suggested that rates might have to remain restrictive for longer than anticipated to meet the inflation target. Furthermore, the RBNZ raised the probability of a rate hike before the end of the year to 60%, signalling a strong commitment to curbing inflation.
RBNZ Governor’s Speech to Impact NZD/USD
RBNZ Governor Adrian Orr is scheduled to speak pre-market on Thursday. This event is expected to influence market movements. Governor Orr’s speech comes on the heels of the RBNZ’s inflation rate forecast, which pushed back expectations of the Consumer Price Index (CPI) falling within the target range to the year’s fourth quarter. This delay underscores the central bank’s readiness to take further action if necessary, as highlighted in their statement that the RBNZ has raised the possibility of a rate hike before the end of the year to 60%.
NZD/USD Outlook Hinges on FOMC
The FOMC’s hawkish stance and the RBNZ’s cautious yet firm outlook have created a complex landscape for the NZD/USD pair. The initial market enthusiasm appeared in the Asian session. At the time, NZD/USD climbed, quickly tempered by the broader market’s reaction to the FOMC Meeting Minutes. This dynamic interplay of US and New Zealand monetary policies underscores the importance of central bank communications in shaping market expectations and currency valuations.
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