by BusinessDesk
Only hours ago, financial markets were fully pricing in a 25 basis point rate hike with a non-zero chance of a 50 basis points increase.
Westpac Bank’s head of NZ strategy, Imre Speizer said just this morning the kiwi dollar would “probably fall” if the RBNZ voiced concerns about covid variant risks.
This theory was put to the test much sooner than expected as the Ministry of Health identified a community case hours later.
The kiwi dollar dropped to a low of 69.47 US cents, down approximately 1% from 70.17 US cents prior to the news.
Pat Gilligan, a director at Forex Limited, said the currency hadn’t reacted so strongly to previous community cases.
“I think what is different this time is that people are thinking it means the RBNZ won’t hike rates tomorrow,” he said.
Market interest rates were telling the same story, with bond yields also seeing dramatic falls. The yield on the two-year government bond dropped from 1.07% to 0.93% and the yield on a five-year bond fell from 1.44% to 1.30%.
BNZ Economist Craig Ebert said this also reflected uncertainty among investors as to whether the central bank would pull the trigger tomorrow.
While the monetary policy committee will have finalised its statement by now, they still have the ability to defer the actual rate hikes up until tomorrow afternoon, he said.
“However, covid and lurking pandemics do not take away the risk of inflation, in some cases it can actually inflame it,” he told BusinessDesk.
Signs of covid-specific inflationary pressure could be seen outside Auckland supermarkets, where people queued up in order to buy household goods in preparation for a lockdown.
NZ shares also declined, with travel stocks losing momentum in the mid afternoon as the covid news hit headlines.
The S&P/NZX 50 Index fell 84.83 points, or 0.7%, to 12,635.32. Turnover was $251 million.
Tourism Holdings dropped 3.8% to $2.31, Air New Zealand declined 2.7% to $1.43, and Auckland International Airport was down 1.3% at $7.05.
Casino operator Skycity Entertainment Group fell 3.1% to $3.10. It would have to close its Auckland venue in the event of a lockdown.
Shares in Mercury NZ declined 1.1% to $6.65 after delivering earnings of $463m, roughly in line with market expectations.
Fisher & Paykel Healthcare jumped 4.5% to $32.46, the stock is often seen as a safe haven during covid-related selling.
The healthcare exporter said tomorrow’s annual meeting will now be held virtually due to “current concerns related to covid-19 in Auckland”.
Investors are hoping F&P Healthcare will provide forward looking earnings guidance.
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