RBNZ throws markets a curveball
TLT•The Reserve Bank of New Zealand unexpectedly held rates on a narrow vote, sending the New Zealand dollar down more than 1% and the Australian dollar up 2% against it to a 13-year high. The decision came as markets had priced in a greater than 70% chance of a rate hike.
1. Unexpected rate decision
The Reserve Bank of New Zealand unexpectedly left rates unchanged on a narrow vote, while agreeing that tighter policy is necessary. The New Zealand dollar fell more than 1%, and the Australian dollar rose 2% against it to its highest level in 13 years.
2. Central banks and markets
The decision preceded rate announcements from the Federal Reserve and Bank of Canada. The Fed was widely expected to hold rates, while the Bank of Canada was seen hiking by 25 basis points. The RBNZ move raised the possibility that policymakers may be willing to wait and that markets may have priced in global rate hikes too soon.
3. Other market developments
Australia’s third-quarter inflation increased on higher fuel costs, while underlying price pressures supported expectations of a fifth rate hike as soon as next week. SK Hynix reported a more than sevenfold rise in quarterly profit and announced about $75 billion in shareholder returns. Investors were also looking to earnings from Alphabet and Microsoft for signs that AI investment can deliver returns.
