MUFG’s Lee Hardman reports the New Zealand Dollar is the top G10 performer overnight, helped by a hawkish shift in RBNZ rate expectations. After last week’s hike, RBNZ's Chief Economist Paul Conway flagged upside risks to the September inflation forecast from Middle East developments and warned of a response if pressures persist. Markets now anticipate a back-to-back rate increase in September.

Kiwi benefits from rate hike risks

"The top performing G10 currency overnight has been the New Zealand dollar which has also been boosted by the hawkish repricing of RBNZ rate hike expectations."

"After hiking rates for the first tie last week, the RBNZ’s Chief Economist Paul Conway stated that “I think developments in the Middle East over the last week suggest upside risks to our September quarter forecast”."

"He warned that “if inflation pressures stemming from the Middle East conflict prove to be more persistent than expected, we will respond”."

"The comments have reinforced market expectations that the RBNZ will deliver a back-to-back rate hike at the next policy meeting in September.

"The latest unfavourable developments in the Middle East have refocused market attention on upside inflation risks for the global economy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)