Commerzbank’s Volkmar Baur reports that the Reserve Bank of New Zealand kept its policy rate at 2.25%, with NZD weakening about 0.8% versus the US Dollar. Markets now price only one hike this year as Governor Anna Breman signals comfort with current settings. Commerzbank doubts the RBNZ can hike at all, expecting NZD/USD to stay under pressure.

RBNZ pause weighs on Kiwi outlook

"At its first monetary policy meeting this year, the Reserve Bank of New Zealand left its policy rate unchanged at 2.25%. The kiwi reacted somewhat negatively to the decision, losing around 0.8% against the US dollar this morning."

"Despite inflation remaining too high – at 3.1% in the last quarter, above the central bank's target of 1-3% – the new RBNZ Governor Anna Breman seems comfortable with the current monetary policy. Inflation is expected to continue to decline over the coming months, which, according to the central bank, will allow it to leave interest rates unchanged for even longer to give the economy a chance to recover."

"As a result, the market currently expects only one interest rate hike by the end of the year, whereas previously it had seen at least a fifty-fifty chance of a second rate hike. We remain uncertain and would expect the economic recovery to continue to be somewhat slower than the central bank expects."

"We therefore continue to see a risk that the central bank will not be able to raise interest rates at all this year. In this case, this morning's setback in NZD-USD would only be a foretaste, and we expect the Kiwi to continue to be under pressure for the rest of this year."

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