FX.co ★ New Zealand Dollar Drops for 2nd Day

The New Zealand dollar slipped to around $0.582 on Wednesday, extending the previous session’s losses as investors reassessed the Reserve Bank of New Zealand’s policy outlook in light of recent comments from the central bank. Governor Anna Breman said on Tuesday that the RBNZ will look through temporary, energy-driven inflation but stands ready to raise interest rates if persistent price pressures risk de-anchoring inflation expectations. Since the conflict began, markets had speculated that the RBNZ might tighten policy sooner than previously anticipated to counter the inflationary effects of rising energy costs. However, Breman’s remarks led traders to scale back expectations of an imminent move. Markets are now pricing in a 44% probability of a rate hike in May, down from 68% at the start of the week. Chief Economist Paul Conway also highlighted that the central bank still sees residual slack in the economy, a factor that will shape how aggressively it reacts to any inflationary pressures arising from higher oil prices.