The New Zealand dollar dips amid lowered rate hike expectations, while the Australian dollar faces mixed signals.
Story Snapshots:
- New Zealand’s dollar decreases after a decline in inflation expectations.
- Australian dollar fluctuates due to contrasting economic data.
- Markets scale back on aggressive Reserve Bank of New Zealand (RBNZ) rate hike bets.
What caused the New Zealand dollar to slip, and how is the Australian dollar faring amidst local economic data? The New Zealand dollar slipped as reduced inflation expectations lowered the likelihood of a rate hike, while the Australian dollar struggled to find direction amidst mixed economic indicators.
In recent market developments, the New Zealand dollar witnessed a decline, dropping 0.5% to $0.6098. This move comes on the heels of an overnight ease of 0.3%, spurred by a downtick in inflation expectations which, in turn, has diluted some of the speculation around an imminent rate hike. The Kiwi now finds support at $0.6080, with resistance forming near $0.6150.
New data emerging on Tuesday revealed that New Zealand’s inflation expectations have moderated to a low not seen in over two years for the first quarter, implying that the prior aggressive rate hikes may have successfully reined in soaring prices. Consequently, two-year swap rates receded to 5.175%, a pullback from the 2-1/2 month peak of 5.245% reached on Monday.
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Despite this easing, experts like Kelly Eckhold, chief economist at Westpac New Zealand, suggest the Reserve Bank of New Zealand (RBNZ) is unlikely to pivot to a more reactionary stance just yet. Eckhold anticipates the cash rate to hit a ceiling of 5.5% this year, dismissing the prospect of policy easing in 2024 based on current observations, and not discounting potential tightening if conditions necessitate.
Meanwhile, the Australian dollar displayed uncertainty, with a slight decrease of 0.1% to $0.6522. This tepid movement came amidst mixed local data, with consumer sentiment reaching a 20-month high in February, fuelled by hopes that interest rates are at their zenith. However, this optimism is juxtaposed with softening business conditions, which have slid below the long-term average.
Across the broader forex market in Asia, a lull was evident, with Chinese and Hong Kong markets remaining closed for holiday celebrations. Traders and analysts are now directing their attention towards the imminent U.S. consumer inflation data, which promises further insights into the Federal Reserve’s monetary policy trajectory.
The outcome of this economic data, particularly from the U.S., is likely to cast a significant influence on the monetary strategies of the RBNZ and the Reserve Bank of Australia (RBA), shaping the fortunes of both the New Zealand and Australian dollars in the days to come. With the market’s gaze fixed on these indicators, the Oceanic currencies’ path will be charted by a complex interplay of local economic health and international monetary policy shifts.
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