Rates as of 0630 GMT

Market Recap

Well, I got it part of it right the RBNZ did indeed raise the Official Cash Rate OCR by 50 bps, as I thought they would, and for exactly the reason I thought they would The Committee agreed that their policy path of least regret is to increase the OCR by more now, rather than later, to head off rising inflation expectations

So we come back to that old question they always ask economists if youre so smart, why arent you rich? In this case its because although I got the RBNZs actions right, I got the market reaction entirely wrong! The market reaction was the opposite of what I had expected, unfortunately, and thats what matters.

NZDUSD rose notably ahead of the announcement could it be that someone got wind of it a few minutes beforehand? but then collapsed immediately afterward. Why?

Because this hike did not represent any change in the path of interest rates, only the pace of change. The Committee remained comfortable with the outlook for the OCR as outlined in their February Monetary Policy Statement, they said. All they were doing is bringing future rate hikes forward. As such, the Feb. 2023 implied OCR actually fell to 3.36 from 3.54 yesterday on the assumption that hiking more now means less need for hiking in the future.

In line with that way of thinking, NZD bond yields out past 1 year fell, with the policysensitive 2year yield down a particularly sharp 14 bps.

AUD and CAD however strengthened as oil prices turned…