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Collinson FX: May 23: RBNZ holds the line on OCR and triggers NZD rally

by Collinson FX 23 May 11:34 NZST 23 May 2024
WASZPs racing in the SailGP Inspire program - Lyttelton - March 23, 2024 © Justin Mitchell

May 23: RBNZ holds the line on OCR and NZD rallies

UK inflation numbers tumbled, from 3.2% to 2.3%, but remained higher than expected. This was enough to push bond yields higher and the GBP, as market analysts now defer the probable interest rate cuts from the Bank of England, until later in the year. The initial surge in the currency was reversed, when the Fed Minutes confirmed similar circumstances, with ‘persistent inflation’ even suggesting further rate hikes, before any US interest rate cuts, would come from the Fed. This was met with a surge in US Bond Yields and the US Dollar. The GBP beat a hasty retreat, back to 1.2700, while the EUR fell back to 1.0800.

The RBNZ was also hawkish, citing inflationary pressures, in their latest decision to leave interest rates at these elevated levels, until at least next year. The had the same impact on the currency, with the NZD rallying strongly following the RBNZ rate decision, only to fall flat following the release of the Fed minutes. The NZD settled back below 0.6100, while the AUD retreated back towards 0.6600. The persistent inflationary pressures look set to continue, despite enormous political and economic pressures, for cuts. Inflation remains the key driver in currency markets.

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