• NZD/USD bears throw in the towel at fresh cycle lows. 
• FOMC minutes rescue the bird from a dovish RBNZ outcome.  

NZD/USD dropped out of the sky on Tuesday and made fresh lows on Wednesday on the back of the Reserve Bank of New Zealand. The pair fell from a high of 0.6256 and to a low of 0.6093.

´´The Kiwi remains on the back foot after getting slaughtered in the wake of yesterday’s extraordinary dovish RBNZ MPS, which suggests, on the face of it that the RBNZ feels it has done enough to tame inflation,´´ analysts at ANZ Bank explained.

´´While markets were taken aback, they haven’t fully bought into it, with the risk of another hike still priced in, but it’s forced a complete re-think for the Kiwi,´´ the analysts added.

´´On the one hand, the decision took away about 40bp of carry we thought we’d get (markets were pricing in a 5.9% peak in the OCR and the RBNZ is at 5.5%), but on the other, the NZD is still the only G10 currency that offers carry vs the USD, and that won’t be missed by anyone who wants to short the USD. So, even though the Kiwi’s pride has taken a hit, it’s still #1 in the carry stakes. That’s a positive,´´ the analysts concluded. 

Meanwhile, the Federal Open Market Committee minutes on Wednesday showed that the board members agreed that inflation risks are still unacceptably high but officials also generally agreed that the extent of further hikes are less certain. 

FOMC minutes, key notes

• Some participants commented that additional policy firming would likely be warranted at future meetings.
• Some participants stressed it was crucial that policy that the statement not signal the likelihood of rate cuts this year or rule out further hikes.
• Fed staff continue to forecast mild recession starting later this year, followed by a modestly-paced recovery.
• Several participants said if the economy evolved along lines of their outlooks, further policy firming might not be needed.
• Participants generally agreed that the extent to which further interest rate hikes may be appropriate had become less certain.
• Many participants focused on need to retain optionality after May meeting.
• Participants judged that the banking sector stress would likely weigh on economic activity but to an uncertain extent.
• Participants agreed that inflation was unacceptably high, and are declining slower than they had expected.
• Some participants noted concerns that the Federal debt limit may not be raised in a timely manner, threatening significant financial system disruptions, and tighter financial conditions.

Overall, the Fed minutes show officials were split on support for more hikes, resulting in a muted reaction in markets, throwing the bird a lifeline.