New Zealand Dollar Hits Three-Week High as Rate-Hike Bets Grow
New Zealand’s dollar advanced to its strongest level in three weeks after a hawkish central bank and strong manufacturing data this week fueled trader bets for two more interest-rate hikes this year.
The so-called kiwi rose as much as 0.7% to 57.93 US cents in Asian trading, touching its highest level since June 18. The currency was on track for its third straight session of gains, marking its longest winning streak since late May.
The rally extended beyond the greenback, with the kiwi also surging to a one-month high against the Australian dollar, as divergence between the two central banks widened.
The kiwi’s rally kicked off following the Reserve Bank of New Zealand’s Wednesday meeting, where policymakers raised the key e by 25 basis points to 2.50% and signaled the potential for more hikes. The currency found fresh legs the next day when manufacturing data showed activity expanding at its fastest pace in almost five years, forcing traders to rapidly unwind .
“The New Zealand dollar is still benefiting from yesterday’s uber-strong manufacturing PMI and the validation this provided for the timing of the RBNZ’s first rate rise,” said Ray Attrill , head of FX strategy at National Australia Bank in Sydney.
Given that futures market positioning data suggest that the kiwi was heavily shorted as of last week, there is “little wonder that we are seeing a significant short squeeze,” he said.
The geopolitical environment is still highly uncertain but the domestic economy has shown a lot of resilience in the past few months despite the fuel shock, RBNZ’s Anna Breman said in an interview with local radio on Thursday. Asked if expectations for two more rate rises this year is realistic, Breman said “it’s not not realistic.”
Still, traders are all but fully pricing two additional, quarter-point rate hikes from the RBNZ through December, according to meeting-linked swaps data compiled by Bloomberg. That’s up from pricing a 36% probability the day before RBNZ’s meeting, the data show.
Kiwi’s strength will last for some weeks as market positioning is too negative, according to Erik Nelson , a strategist at Wells Fargo Securities. Hedge funds have been short the currency since December.
