NZD surges after 50bps, but gains short lived
The NZD/USD jumped to two-month highs yesterday after the Reserve Bank of New Zealand surprised markets with a 50-basis point hike taking rates to 5.25%.
All but one economist, and an 85% probability from markets, had seen a 25-basis point hike as most likely, but the NZ central bank indicated that high inflation and falling global bond yields has forced its hand.
Importantly, the RBNZ said that falling global bond yields, driven by worries around banking stability, had caused the NZ central bank to hike more than expected as lower wholesale funding costs, flowing through to fixed mortgages, could be stimulatory.
The benchmark NZ two-year yield had fallen from 5.12% before the crisis to as low as 4.34% before bouncing back to 4.74% after yesterday’s hike.
The NZD/USD jumped as much at 1.1% after the announcement but the gains were short-lived. The kiwi later gave back most of those gains to close only 0.1% higher.

US data extends recent declines
The NZD’s later weakness was in line with most markets with US shares down after more bad news from the US economy.
The US services PMI number was well below expectations – at 51.2 versus the 54.3 – and produced a big drop from 55.1 seen last month.
The news saw US sharemarkets lower. The S&P 500 fell 0.2% while the Nasdaq dropped 1.0%.
The USD gained as investors moved into safe havens.
The AUD/USD fell with the pair down 0.5%. The Aussie was weaker in most all other major markets.

Bad jobs on Good Friday?
The US’s ADP jobs reading, the closely-watched private sector jobs report, was also disappointing overnight.
The ADP report found 145k jobs were added in March – well below the 208k expected.
The report was seen as key after the Job Openings and Labor Turnover Survey (JOLTS) was also poor this week and the totality of data might signal a potentially weaker US non-farm payrolls on Friday.
The US nonfarm employment report is due at 10.30pm AEST on Friday – and could result in volatile trade with many global participants out of the market due to the Good Friday holiday.

NZD strongest after RBNZ surprise
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Calendar: 3 – 7 April

All times AEST
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