FX markets try to regain footing, kiwi jumps after RBNZ meeting

HONG KONG (Reuters) – Currency markets paused on Wednesday after a choppy few sessions as the seesaw markets sought to tame the latest developments in Eastern Europe amid a deepening crisis in Ukraine .

Away from the threat of a full-scale Russian invasion of Ukraine, the New Zealand dollar jumped 0.52% after the Reserve Bank of New Zealand raised interest rates and said that additional tightening may be needed.

The euro was flat at $1.1325, the pound was pinned at $1.3593, and the yen and Swiss franc also took a breather after falling sharply as investors remained hopeful that a major war against Ukraine could be avoided.

Western nations and Japan on Tuesday punished Russia with new sanctions for sending troops into breakaway regions of eastern Ukraine and threatened to go further if Moscow launched an all-out invasion of its neighbor.

One U.S. dollar was worth 115.03 yen in Asian trade, with the greenback climbing steadily overnight since its near three-week low of 114.48 hit on Monday and 0.9204 franc, after rallying 0.63 % overnight.

That left the dollar index which measures the greenback against six peers little changed at 96.063.

“Despite the sanctions against Russia, the reaction from FX has been quite subdued,” said Carol Kong, strategist at Commonwealth Bank of Australia.

She said the subdued market reaction and the overnight drop in the dollar and yen “indicates that market participants are not really concerned about the Russian-Ukrainian tensions and certainly do not expect they affect the global economic outlook”.

High prices for energy, partly due to the situation in Ukraine, and other commodities helped the Australian dollar climb to $0.7241 on Wednesday, its highest level in nearly two weeks.

Crude hit nearly $100 a barrel on Tuesday on fears the Ukraine crisis could cause supply disruptions, and hit its highest level since 2014. [O/R]

This price increase also had an effect in Europe and the dollar tumbled 1.3% against the Norwegian krone on Tuesday.

On the global monetary front, the Reserve Bank of New Zealand reminded investors that central bank policy is still a major factor for currencies.

While its 25 basis point hike, its third in a row, was widely expected, the central bank revealed it was set to hike 50 basis points to avoid a further rise in inflation expectations.

It also revised the projected path of the official exchange rate (OCR) sharply higher to peak at 3.35%, from 2.6% previously and well above market expectations.

(Reporting by Alun John; Editing by Shri Navaratnam)

Comments are closed.