RBNZ Hikes Rates & Signals Faster Tightening to Come – FOMC Minutes Next

The August RBNZ meeting overnight saw the central bank increasing its headline rate by a further 50bps from 2.5% to 3%. Along with the increase, which was in line with market projections, the RBNZ also signalled the need to continue hiking rates, bringing forward its peak rate projection of 4% into Q2 next year.

Commenting on the move, RBNZ governor Orr told reporters that “Our view is that sitting around that 4% official cash rate level buys the monetary policy committee right now significant comfort that we would have done enough to see inflation back to our remit.”

NZD has weakened on the back of the meeting with many players expressing concerns over the impact on growth. The RBNZ has made it clear that its main, near-term priority is battling inflation, acknowledging that other areas, such as the housing market, will likely suffer near-term.

Key Factors for Today

- RBNZ hike rates from 2.5% to 3%
- UK inflation hits fresh 40-year highs at 10.1% in July
- Stock markets rally on softer USD and better US earnings
- July FOMC minutes coming up later along with US retail sales
- Eurozone flash GDP on deck also

Coming Up

- USD US retail sales
- USD July FOMC minutes
- EUR Eurozone Flash quarterly GDP

Risk Assets Rally As Key US Names Beat Earnings Estimates

Stock markets saw a much stronger session again yesterday as better US earnings from some big names helped lift sentiment. Walmart and Home Depot, two key retailers both beat earnings estimates and offered better guidance for the current quarter. These results, along with continued focus on a potentially slower pace of Fed tightening over the rest of the year, helped lift risk sentiment as the US Dollar softened.

Walmart shares gapped higher by more than 5% at the open yesterday while Home Depot shares rose by more than 6%. The main move, however, was seen in Bed Bath & Beyond which saw its stock price surge almost 50% driven by Reddit traders who bought in force to cause the squeeze.

Equities Indices Rallying

The Nikkei is now trading over 2% higher on the week and is close to testing the 2022 highs. In Australia, the ASX was lifted by a strong set of Q2 earnings from BHP Biliton while in the US, the Dow Jones has broken out to its highest levels since April 2022, rising 2.6% this week. However, there were some weak spots; the Hang Seng was seen falling overnight as shares in Chinese food delivery service Meituan cratered on news that Tencent plans to sell its $24 billion holding in the company.

GBP Leads in FX as UK Inflation Soars

In FX, GBP has been the standout currency today. With UK inflation seen hitting fresh 40-year highs of 10.1% in July, market pricing for the BOE has shifted higher again with the OIS now pegging rates to peak at 3.4% next year up from 2.72% previously. JPY and CHF have been the weaker currencies today as safe-havens lose out amidst the uptick in risk sentiment we’re seeing this week.

US Retail Sales & FOMC Minutes Up Today

On the data front today, the main events will be US retail sales and the July FOMC minutes. Traders will be carefully scouring today’s minutes for any sign that the Fed is looking to cool off on rate hikes. The noting of a so-called “Fed pivot” has taken hold following softer inflation data last week. If any dovishness is perceived this might cause some near—term unwinding of USD, putting greater focus on the rally in stock markets. Additionally, flash eurozone quarterly GDP will be closely watched given the growing concerns over recession risks in the single market.