The New Zealand dollar sagged on Wednesday after the country's central bank disappointed those wagering on another hike in rates, while bond yields were swept to multi-year peaks by the selloff ravaging U.S. Treasuries.
The decision by the Reserve Bank of New Zealand (RBNZ) to hold rates at 5.5% was fully expected by markets, but some had thought it would signal a bias to tighten further given upside risks to inflation.
While the central bank did acknowledge those risks, it stopped short of flagging further tightening and instead indicated rates would have to stay at their current restrictive level for a "more sustained period of time."
"The bank appears content to wait for restrictive policy settings to fully feed through to the real economy," said By Abhijit Surya, an economist at Capital Economics.
"We're sticking with our view that, barring any major upside surprise in incoming data, the RBNZ's tightening cycle is over," he added. "However, policy is likely to remain restrictive for a prolonged period, with rate cuts only in Q3 2024."
As a result, bill futures
0#NBB: recouped all their early losses to turn higher as the market pared back the chance of a hike in November. RBNZWATCHTwo-year swaps NZDSM3NB2Y= eased to 5.735%, after hitting a 15-year top of 5.835% on Tuesday amid a rout in bond markets.
The kiwi slipped 0.5% to $0.5877 NZD=D3 , having already fallen heavily for two sessions as a jump in Treasury yields lifted the U.S. dollar. The retreat left it uncomfortably close to the September low at $0.5860 and a breach would take it to territory not visited since last November.
The Australian dollar was also on the ropes at $0.6288 AUD=D3 , having touched an 11-month trough of $0.6286 on Tuesday. The next major bear target is a low from October last year at $0.6170.
The Aussie had not been helped by a decision by the Reserve Bank of Australia (RBA) to keep its rates steady at 4.1% for a fourth straight month.
More telling was the inexorable rise in U.S. yields which was lifting the U.S. dollar on everything while undermining equities and risk appetite globally.
The pressure spilled over into Australian bonds where 10-year yields AU10YT=RR shot to their highest since August 2011 at 4.68%, before easing a touch to 4.63%.
Yields have now risen almost 60 basis points in less than three weeks, but Aussie bonds have still outperformed Treasuries to trade 18 basis points under the U.S. 10-year.
New Zealand 10-year yields NZ10YT=RR have hit their highest since mid-2011 at 5.478%, having climbed almost 50 basis points in the past three weeks.
