The kiwi dollar rose on Wednesday after the Reserve Bank of New Zealand’s (RBNZ) decision earlier in the day sounded less dovish than expected.
The currency gained as much as 1.7 percent to $0.6852 against its US counterpart, before easing to trade up by 1.2 percent to 0.6815, with markets likely anticipating a much more dovish RBNZ.
The central bank stick to its record low cash rate of 1.75 percent, but did not provide any new dovish hints either for future monetary policy changes or headline economic indicators.
RBNZ governor Adrian Orr also supported the central bank’s outlook, stating that that the chances of a rate cut had not increased and risks are finely balanced.
However, while RBNZ’s tone was only slightly more dovish than the prior statement, its forecast for a rate hike has been adjusted from late 2020 to March 2021.
Official cash rate (OCR) is expected to stay at that level throughout this year and next, while the direction of the next OCR move could be up or down, according to Orr.
The Swedish crown also strengthened after the Sveriges Riksbank said the economic outlook had not changed much since December and it would carry on with its rate hike plan in the second half of 2019.
Against the Swedish crown, the dollar lost 0.07 percent to 1.0056, while the euro fell 0.1 percent to 1.1383.
Dollar Ends Eight-day Winning Streak
The US dollar took a breather on Wednesday as trade deal optimism coming from the US side boosted demand for riskier currencies and weakened demand for safe-haven assets, including the greenback.
The dollar index retreated from a two-month high after snapping an eight-day winning streak overnight. The index was last trading up by 0.08 percent to $96.583 against a basket of six major currencies.
Against the yen, the greenback climbed 0.1 percent to 110.68.
The Australian dollar, a gauge for global risk assets, advanced 0.2 percent to $0.7113.
The trade conflict between the two countries has been present on markets worldwide since mid-2018, and any sign of tensions easing has tended to lift sentiment.
US President Donald Trump on Tuesday softened his stance on the trade row with China, stating that he could consider allowing the March 1 deadline slide for a little while, if both parties were near completing an agreement.
The self-imposed deadline is vital in the trade talks as the 10 percent US tariffs on Chinese imports will more than double to 25 percent if a deal is not sealed before then.
Officials in Washington and Beijing are currently engaged in negotiations this week to try and come up with an arrangement, although discussions seemed like it still have long way to go as both parties have not drafted an accord specifying the matters they agree and disagree on.
That, along with a tentative agreement to avoid another partial US government shutdown, bolstered stock markets and drove riskier currencies higher.
Currencies strategist Jane Foley said there is optimism in the market and one could argue that is why people no longer want to buy the dollar and want to try some risk.
Still, Foley noted that the euro/dollar pair had remained caught in a choppy range in recent months, as economic outlook turns dimmer in the US and the euro zone – an uncertainty that could encourage further dollar upside.
The euro dropped 0.04 percent to $1.1320 against the greenback.
There is a lot of evidence that global growth is slowing and a lot of evidence to be suspicious of an end to the US-China trade war. There will still be a long way to go, Foley added.
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