AUD/USD and NZD/USD Fundamental Daily Forecast – RBNZ Hikes Less Than Hawkish Traders Had Expected

The Australian and New Zealand Dollars are edging lower on Wednesday in a lackluster trade fueled by light pre-holiday trading. The Aussie has shown limited pre-action while the Kiwi has slipped significantly after the Reserve Bank of New Zealand (RBNZ) hiked its benchmark interest rate by less than hawkish traders had expected. Loses have been limited, however, by forecasts predicting higher rates in the future.

At 09:54 GMT, the AUD/USD is trading .7219, down 0.0008 or -0.10% and the NZD/USD is at .6911, down 0.0039 or -0.57%.

RBNZ Hikes Rates Again, Warns of More to Follow

The RBNZ raised interest rates for the second straight month on Wednesday to keep surging consumer prices in check and warned homeowners in the country’s red hot housing market to get ready for more hikes.

Central bank policymakers lifted the official cash rate (OCR) a quarter of a percentage point to 0.75% in the final policy meeting of the year, as the country shakes off its pandemic slump and prepares to reopen to the world.

Most economists in a Reuters poll predicted the RBNZ would raise rates by 25 basis points. Investors were more aggressively poised, pricing in a 40% chance of a 50 basis point hike, which meant the local dollar sold off after the smaller move was announced.

Reuters reported that RBNZ Governor Adrian Orr said the bank had considered a range of options, including a 50 basis point hike, but added the 25 basis point increase placed its “best foot forward”.

“At the moment, with everything we have in our hands, we see steady steps of 25 basis points back to levels where the OCR is marginally above the neutral rate as the most balanced approach we can take,” Orr told reporters after the meeting.

The RBNZ also said in its forecasts on Wednesday that rates would reach 2.5% by 2023 and go higher by December 2024.

Short-Term Outlook

The combination of light pre-holiday volume and speculator disappointment in the RBNZ’s rate hike decision are expected to keep a lid on the NZD/USD on Wednesday. The AUD/USD is just going along for the ride. However, the Aussie also remains under pressure due to its dovish central bank.

Meanwhile, investors continue to increase bets on a faster tapering by the U.S. Federal Reserve as well as an earlier than expected rate hike in 2022.

The Fed meeting minutes, due to be released at 19:00 GMT later Wednesday are expected to offer clues as to how aggressively policymakers would be willing fight the rapid rise in inflation without dampening jobs growth.

Traders will also get a chance to react to a slew of U.S. economic data including GDP, Durable Goods and weekly unemployment claims.

The key report will be the Core PCE Price Index. This measure of inflation is said to be the Fed’s favorite. Data on consumer sentiment, personal income and personal spending is also expected to be released.