Kiwi rises as RBNZ takes a hawkish tone, while the dollar falls as a result of Fed cut wagers

29 Nov 2023 , 10:27 AM

The dollar slid across the board to hit a more than three-month low against its major peers on Wednesday, while the New Zealand dollar surged after its central bank suggested that more rate hikes could be in the offing. 

The Reserve Bank of New Zealand (RBNZ) held interest rates unchanged, as anticipated, but revised its official cash rate (OCR) track higher for 2024 and 2025, signalling to additional tightening ahead. This caused the kiwi to surge more than 1% and to a four-month peak of $0.6203.

The RBNZ’s announcement ‘struck a hawkish tone by stating that inflation remains too high,’ according to Matt Simpson, senior market analyst at City Index, even though a hold was anticipated.

Similarly, the Australian dollar rose to a four-month high of $0.6670, unmoved by domestic data indicating that core inflation and inflation in goods decreased in October, both of which were below expectations.

The weakening dollar, which fell to a level below three months’ worth compared to a basket of other currencies as speculation mounted that the U.S. Federal Reserve might start lowering interest rates early in the upcoming year, helped the Antipodean currencies.

Fed Governor Christopher Waller, a well-known and powerful hawk at the central bank, hinted on Tuesday that rates may be lowered in the coming months, which fueled market predictions that the country’s rates had peaked.

At its lowest point in over two months, the dollar fell more than 0.5% to 146.675 yen, while the euro rose past $1.10 to a three-month high of $1.1017.

According to Kyle Rodda, senior financial market analyst at Capital.com, ‘he’s relatively hawkish, historically speaking, so if his attitude is turning a little bit more dovish, it sort of says that perhaps a general consensus of the board members is that rates have peaked and maybe could be cut next year.’

The CME FedWatch tool indicates that market pricing now indicates a 40% possibility the Fed might start easing monetary policy as early as next March, up from about a 22% chance a day earlier.

In a similar vein, the dollar index dropped to 102.46 as sterling reached a three-month high of $1.2733.

The index was expected to lose around 4% in November, which would be its worst monthly result in a year.

‘We have become less constructive on the prospects for the U.S. dollar, as progress in reducing U.S. inflation suggests the risks are tilted toward earlier rather than later Fed easing,’ a report from Wells Fargo stated. ‘Despite U.S. economic resilience, this should lessen the greenback’s near-term gains.’

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