LIVE MARKETS-RBNZ surprises, could Fed or BOC be next?
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RBNZ SURPRISES, COULD FED OR BOC BE NEXT?
New Zealand's central bank unexpectedly held interest rates steady overnight, with some policymakers opting to wait to see how the economy evolves after delivering two rate hikes previously.
The central bank's guidance suggests there are more hikes on the radar, but the surprise move sent the kiwi dollar sharply lower, heading for its biggest one-day drop since so-called Liberation Day in April 2025.
With two more rate decisions on the schedule on Wednesday, could markets be in for more surprises?
Markets are pricing a less than 20% chance of a rate hike from the Fed when it concludes its two-day meeting later.
"A pause ... is broadly consensus and basically fully priced, with markets putting more weight on Fed speak and shaky risk sentiment than the intermeeting inflation data," write strategists at RBC in a note.
Perhaps more interesting is the Bank of Canada, with markets pricing in an over 80% chance of a rate hike. RBC believes that the market pricing is "stretched", noting that the BOC has a history of surprising markets.
"While the totality of macro data — growth, inflation, labor, and wages — does not compellingly argue for urgency, elevated oil prices and uncertainty around the degree of slack make a preemptive move defensible," RBC says.
"The most likely outcome is a modest hawkish hike, with language keeping the door open to further tightening, though a hawkish hold cannot be ruled out."
(Samuel Indyk)
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