MUFG’s Lee Hardman highlights the New Zealand Dollar (NZD) as the main overnight mover, boosted by hawkish guidance from Reserve Bank of New Zealand (RBNZ) Governor Breman. His comments on higher Oil-driven inflation have reinforced expectations for a third consecutive 25 bps hike next month. Stronger-than-expected Q2 growth and markets pricing over 100 bps of tightening by next summer underpin the kiwi’s firmer tone.

Kiwi lifted by RBNZ tightening bets

“While rising US rates are encouraging a stronger US dollar, the positive impact is being offset by expectations for further policy tightening outside of the US as well. The bigger mover overnight in the FX market has been the New Zealand dollar.”

“The kiwi has been boosted by hawkish comments from RBNZ Governor Breman who indicated that “if higher oil prices persist, they are expected to result in somewhat higher near-term inflation than we assumed” in September monetary policy statement”.”

“The comments have reinforced markets expectations for the RBNZ to deliver a third consecutive 25bps rate hike at next month’s policy meeting. It follows stronger than expected growth of 0.2% in Q2 as well.”

“The New Zealand rate market is now pricing in around 18bps of hikes for next month and just over 100bps of hikes by next summer.”