3-3
Fear not: the title of this brief does not have anything to do with the weekend’s Champions league penalties. Instead, I’m looking at one of the biggest movers in the G10 space last week: the New Zealand Dollar. When the Reserve Bank met last week, it was expected to keep rates on hold. Ultimately it did just that but only by the skin of its teeth. The vote was split 3-to-3, with half of members wanting an immediate 25-basis point hike to policy rates and the rest wanting to keep rates on hold.
Ultimately, the bank delivered a ‘hold’ decision because in the event of a tie, RBNZ governor Anna Breman’s vote breaks the impasse. At this meeting she had voted for no-hike making this the bank’s final decision. That signal of division was enough to show markets that, as in recent years, the central bank was prepared to stick its neck on the line and take action on emerging inflationary pressures early. The forward guidance accompanying their decision also showed that the bank now expects two 25-basis point hikes by year end. Traders scrambled to price these adjustments into subsequent meetings pushing the Kiwi significantly higher.
Versus the US Dollar, NZD gained over 2.5% in the sessions that followed, with gains driven primarily by monetary policy expectations and a favourable risk environment. Hurt by a deterioration in risk sentiment yesterday, that trade has taken a breather this week despite endorsements by banks such as Wells Fargo overnight to its clients. Also to watch out for is the AUD/NZD pair reaching a key technical area. So far, the pair has held above its 100-day moving average having broken through the 200-DMA decisively during last week’s central bank decision. AUDNZD’s appreciation has been a steady cornerstone of G10 FX since mid-2025 making this ongoing correction all the more significant.
Discussion and Analysis by Charles Porter
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