Rates as of 0630 GMT

Market Recap

Interesting contrast! Tuesday the Reserve Bank of New Zealand RBNZ hiked by 50 bps instead of the 25 bps that economists were expecting and NZD weakened anyway. Yesterday the Bank of Canada hiked 50 bps as was widely expected and CAD strengthened USDCAD declined.

The difference is what comes next. The RBNZ said that the move didnt change the expected path of rates, just brought forward the moves, and also noted that a larger hike now provides more policy flexibility, meaning the possibility of a slower rate hike path in the future or even a cut in rates to deal with the highly uncertain geopolitical environment.

The BoC on the other hand came out unmistakeably hawkish. It not hiked rates by 50 bps but also announced it would end the reinvestment of bonds in its portfolio and would begin reducing the size of its balance sheet quantitative tightening, or QT from April 25th. This was in response to a sharp increase in their forecast for inflation this year from the previous forecast in January and concern about the increasing risk that expectations of elevated inflation could become entrenched.

The Banks previous forward guidance said As the economy continues to expand and inflation pressures remain elevated, the Governing Council expects interest rates will need to rise further. It changed that to a considerably more aggressive With the economy moving into excess demand and inflation persisting well above target, the Governing…