By Gregor Stuart Hunter
SINGAPORE, Oct 28 (Reuters) – The US dollar held onto gains on Wednesday after rallying to a two-week high ahead of policy decisions from central banks including the Federal Reserve, though the kiwi dollar plunged after the country’s central bank unexpectedly kept rates on hold.
Most of the dollar’s peers were unmoved ahead of the Fed decision. The euro was flat at $1.1124, while the British pound slipped 0.1% to $1.32945. Against the yen, the dollar moved between gains and losses and was last flat at 157.945 yen.
The New Zealand dollar sank as much as 1.7% to an intraday low of $0.55831 after the Reserve Bank of New Zealand unexpectedly held interest rates at 2.75%. A Reuters poll said 22 of 27 economists expected the central bank to raise rates.
“The market just got that wrong,” said Mike Houlahan, director at Electus Financial in Auckland.
“The election is only 10 days away,” he added. “It’s common courtesy not to get involved in politics.”
The currency trimmed some losses after Governor Anna Breman said the central bank’s rate-setting committee expected to see further official cash rate increases in coming meetings. She also said, “They may even be higher than we said at the September meeting.”
“It looks like the RBNZ has delayed tightening rather than cancelled it outright and they’ll probably resume before long,” said Thomas Mathews, head of markets for Asia-Pacific at Capital Economics in Wellington. “That said, given the economic backdrop, it always seemed as though market pricing was a bit too aggressive. I wouldn’t be surprised if we get more dovish ‘surprises’ over time and more kiwi weakness.”
The Australian dollar was 0.1% stronger at $0.70345 after the release of inflation data, which stood at 1.3% in the third quarter of the year, up from 0.6% in the previous quarter. The trimmed mean measure of core inflation was 1%, matching market estimates and keeping the annualised rate at an above-target 3.6%.
The Reserve Bank of Australia will debate whether four interest rate hikes this year will prove sufficient to return inflation to its target at a policy meeting next week, Governor Michele Bullock told lawmakers on Wednesday.
“Today’s inflation data and Senate testimony are the final pieces of information before the RBA Monetary Policy Board (MPB) meets next week,” Westpac analysts wrote. “Recent data and communication have consistently pointed to the staff recommending an increase in the cash rate,” they added.
“We expect a majority of the external members to agree, though some members might dissent.”
