The kiwi dollar surged 1% on Wednesday against a broadly sturdy greenback after New Zealand’s central bank announced an end to its pandemic-linked bond purchases, paving the way for an interest rate hike by year-end.
Markets are seeking clues on when the central bank might consider tapering its stimulus and whether it still holds the oft-reiterated view that higher inflation is transitory.
By 0730 GMT, the dollar index edged 0.2% lower to 92.64 after earlier rising as high as 92.832 - just below the 92.844 level reached last week for the first time since April 5.
Against the euro, it strengthened to $1.17720, the highest since April 5, for a second day running, before slipping 0.2% to $1.1795.
Attention has turned in the meantime to central banks that are proceeding with their plans to exit pandemic-era stimulus, and economic growth fears stemming from a global upsurge in COVID-19 case loads.
New Zealand’s central bank said it would cut short a NZ$100 billion ($70 billion) bond-buying programme, prompting banks to bring forward calls for a rate rise to as early as August, which would put it at the forefront of countries to raise interest rates.
Broader currency market sentiment remained on the risk averse side as perceived safe-haven currencies, including the Swiss franc and the yen, edged higher while the Norwegian crown slipped.
“The market consensus appears to be that Chair Powell will try and balance that shift with a cautious tone over proceeding with QE tapering. The increase in infections of the Delta variant in the U.S. and globally is one reason for Powell to stress the need for caution,” MUFG strategists said in a note.
· China's yuan eases as investors grow cautious after basket index hits 5-year high
China's yuan eased against a firmer dollar on Wednesday, with many investors growing cautious after the yuan's value against major trading partners surged to a more than five-year high due to other currencies weakening faster against the greenback.
Before the market opened, the People's Bank of China (PBOC) set the midpoint at 6.4806 yuan per dollar, 49 pips weaker than the previous fix of 6.4757. It was the weakest since June 24.
The index for yuan's trade-weighted basket rose to 98.45, the highest since March 16, 2016, according to Reuters' calculations based on official data.
· Japan's 10-year bond yield falls amid solid BOJ bond-purchase operation
The yields on 10-year Japanese government bonds fell on Wednesday after the market witnessed solid outcome for the Bank of Japan’s bond-buying operations.
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