New Zealand dollar volatility spiked ahead of the RBNZ decision, with traders building bullish positions while hedging against a weaker kiwi.
Overnight implied volatility in the New Zealand dollar jumped to 18%, the highest among G10 currencies, with most forecasters expecting another rate hike from the Reserve Bank of New Zealand.
The New Zealand dollar’s one-year risk reversal gauge closed near its highest close since January 2022.
Meanwhile, the New Zealand dollar fell more than 0.6% against the U.S. dollar on Tuesday amid broad dollar strength. Wall Street forecasters are mixed on the outlook for the New Zealand dollar.
Some expect the RBNZ to raise interest rates again and issue a hawkish policy statement to firmly establish the kiwi’s high-yielding appeal at a time when other central banks are pausing tightening. While others were relatively negative, pointing to weaknesses in New Zealand’s economic fundamentals