The Reserve Bank of New Zealand raised the cash rate by 50bps at its monetary policy meeting. This takes the cash rate from 1.5% to 2.0%. The rate hike was widely, basically unanimously, expected. Markets were pricing in the peak for the cash rate to somewhere circa 3.5% but the RBNZ surprised by ratcheting up the expected peak to 3.95% in H2 of 2023 (3.25% by the end of 2022). This was a hawkish surprise. NZD/USD jumped to circa 0.6500 from around 0.6430 heading into the announcement. We are now awaiting the press conference from Reserve Bank of New Zealand Governor Orr.

nzd wrap 25 May 2022

In data today we had Australian ‘construction work done’ from Q1 of 2022. This feeds into the GDP data for the quarter. It disappointed at -0.9% q/q vs. the +1.0% consensus median estimate. While the Omicron wave and rain & flooding were expected to keep construction activity restrained, the actual result was a big disappointment. On the brighter side Q4 2021 (ancient history) was revised to +0.6% q/q from -0.4%.

News from the region included North Korea firing off 3 ballistic missile tests. The US and South Korea responded by firing tests of their own, 2 missiles into the East Sea intended to show the readiness of their own "rapid strike capabilities".

It was a mixed session for FX rates. EUR/USD and AUD/USD are net lower on the session. USD/CAD and GBP/USD are barely changed. USD/JPY is little changed also while USD/CHF is up just a little. NZD, as noted above, was the mover,