NZ Dollar Falls Amid RBNZ Dovish Signals

(RTTNews) - The New Zealand dollar weakened against other major currencies in the Asian session on Monday, due to a dovish hike by the Reserve Bank of New Zealand (RBNZ).

Earlier this month, the New Zealand central bank raised the Official Cash Rate (OCR) by 25 basis points (bps) to 2.75% in a dovish rate hike. According to the RBNZ, the bank is concentrating on a "gradual removal of monetary stimulus," and the present rate is still accommodating.

Before the year is out, most economists anticipate at least one more rate increase, most likely in December. The market's expectations for an aggressive tightening cycle have been tempered by the RBNZ's cautious tone and forward guidance, which puts some selling pressure on the Kiwi.

Asian stock markets traded lower amid surging crude oil prices after the critical East-West pipeline was shut by Saudi Arabia following drone attacks and talks between Iran and the GCC about a possible reopening of the Strait of Hormuz were postponed. The pipeline provided an alternative route around the Strait of Hormuz.

Hotter-than-expected U.S. inflation also reinforced the case for higher rates. Markets are currently pricing in an 86% probability that the US Fed will raise its policy rate by 25 basis points on Wednesday, with another rate hike expected later this year.

Fed Chair Kevin Warsh's press conference will be carefully watched by traders in anticipation of future policy recommendations. In the short future, any unexpected dovish remarks from Warsh might cause the US dollar to decline versus the NZD.

In the Asian trading today, the NZ dollar fell to nearly a 10-month low of 89.02 against the yen, from Friday's closing value of 89.28. The kiwi may test support near the 88.00 region.

Against the U.S. and the Australian dollars, the kiwi dropped to more than a 2-week low of 0.5781 and a 4-day low of 1.2366 from last week's closing quotes of 0.5815 and 1.2332, respectively. If the kiwi extends its downtrend, it is likely to find support around 0.56 against the greenback and 1.25 against the aussie.

The kiwi edged down to 2.0016 against the euro, from Friday's closing value of 1.9950. On the downside, 2.02 is seen as the next support level for the euro.

Looking ahead, Canada CPI data for August is due to be released in the New York session.