NZD/USD gyrates in a 50-pips range as RBNZ hikes interest rates by 75 bps to 4.25%

• NZD/USD has displayed a wild move in a 50-pips range as the RBNZ has hiked its OCR by 75 bps to 4.25%
• The risk profile is solid as investors have started averting China’s Covid-19 worries.
• Goldman Sachs sees long-term US Treasury yields at 4% or above till the end of 2024.

The NZD/USD pair has witnessed wild gyration in a 0.6130-0.6178 as the Reserve Bank of New Zealand (RBNZ) has hiked its Official Cash Rate (OCR) by 75 basis points (bps). The RBNZ has ditched the 50 bps rate hike regime this time and has gone for a much bigger rate hike this time. The interest rates have been pushed to 4.25%. The decision by RBNZ Governor Adrian Orr has remained in line with the expectations.

A Reuters poll on RBNZ’s rate hike projections was claiming an increment in the Official Cash Rate (OCR) by 75 bps.

The New Zealand economy is facing troubles due to a historic surge in inflationary pressures. In the third quarter, the inflation rate landed at 7.2% led by significant price growth in services.

Meanwhile, the risk profile is favoring risk-perceived currencies as optimism is fueled in global markets after investors shrugged off uncertainty over economic projections in China due to rising cases of Covid-19. S&P500 futures are trading flat in Tokyo after a bullish Tuesday. The US dollar index (DXY) has dropped below 107.10, carry-forwarding volatility observed in the previous trading session.

The 10-year US Treasury yields have dropped below 3.76% ahead of the release of the Federal Open Market Committee (FOMC) minutes. The minutes will provide a detailed explanation of hiking interest rates by 75 bps consecutively for the fourth time. Apart from that, cues about interest rate guidance will be of significant importance.

A report from Goldman Sachs claim that long-term US yields will remain at 4% or above till the end of 2024, as reported by Bloomberg. The reasoning behind the claim is that the Fed is ignoring economic contraction in its battle against multi-decade high inflation. The investment-banking firm sees no recession in the US and the inflation will remain above target in 2023.