RBNZ Holds, Poloz Will Too

The RBNZ held rates unchanged as largely expected but it was the BOC's Poloz that surprised with a less hawkish message. The US dollar was the top performer Wednesday while the Canadian dollar lagged. The RBNZ left rates unchanged. The Pre-Fed EURUSD Premium short hit its final 1.1730 target for 180-pip gain. A new trade has been issued.

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The RBNZ left the official cash rate at 1.75% and said a lower New Zealand dollar would help the economy. That's a slight downgrade in the jawboning but the main message that monetary policy will remain accommodative for a considerable period was unchanged. Kiwi slipped on the headlines but the overall message was largely priced in.

A central bank that has kept the market off balance has been the Bank of Canada. That's in part because of a lack of communication since the tightening cycle began. The market had been pricing in a 38% chance of a hike in October and a 68% chance of higher rates in December.

That's looking far less likely after Poloz signaled a wait-and-see stance. He said the BOC will proceed cautiously from here while repeatedly emphasizing uncertainties and data dependence. In particular, he highlighted that the BOC wanted to see the effects of the rate hikes, the government's housing measures and the rise in the exchange rate. That's going to take time and means October is off the table, barring a string of great economic data points.

Outside of Poloz, the theme on the day was US dollar strength led by a selloff on Treasuries. Republicans announced some details of the tax plan and that helped stocks along with some minor deficit worries. USD/JPY rose as high as 113.26 before fading to 112.80.

Meanwhile, we had highlighted downside risks for EUR/USD and it fell to 1.1717, a one month low.

Looking ahead, the euro will be in particular focus in the day ahead with German CPI numbers coming up.