SYDNEY- The dollar steadied on Wednesday after a sharp rate rise in New Zealand poured cold water over hopes for a pause or slowdown in the US Federal Reserve’s intentions for aggressive hikes.
The dollar had suffered its heaviest setback in more than two years on Tuesday but was back on the front foot after the Reserve Bank of New Zealand (RBNZ) delivered a fifth consecutive 50 basis point (bp) hike.
Even the New Zealand dollar was only boosted briefly. The kiwi leapt as much as 1.3 percent before falling back to flat at $0.5731. The euro fell 0.2 percent to $0.9963. Sterling’s rally faltered as it fell 0.5 percent to $1.1425.
The RBNZ move and tone contrasted with the Reserve Bank of Australia’s surprisingly small 25 bp hike a day earlier, which had stoked hopes that the US Federal Reserve may also slow hikes and fuelled dollar selling.
“Just as RBA’s smaller-than-expected hike yesterday added to trimming of hawkish Fed bets, RBNZ’s hawkish signalling could remind markets that fighting inflation is still priority for many central banks,” said Maybank analyst SaktiandiSupaat.
“A more synchronous dovish tilt among major central banks on growth fears might be premature.”
The dollar index, down about 4 percent since hitting a record high of 114.78 last week, steadied to 110.37.
Demand for the safe haven dollar had fallen in recent days as the mood in global markets improved on speculation Britain’s new finance minister KwasiKwarteng, having rowed back on a proposed tax break for high earners, could make further adjustments to a mini-budget that had sent bond and currency markets into a tailspin last week.
