New Zealand has raised its base interest rate to 3% from 2.75% overnight – now pushing the Kiwi “higher” than it’s neighbor AUD ( The Australian Dollar ) as far as yield is concerned.
Now……in a typical / healthy / strong / global growth / “risk on” environment – this kind of news would have sent the Kiwi “shooting for the moon” as Carry traders planet wide would most certainly look to take advantage of the % spread. Selling JPY and USD ( at near 0% ) and in turn buying NZD at 3%.
So why on Earth is NZD “lower on the rate hike”? How is this possible? Why would this be?
It’s because Carry traders are currently “unwinding risk” in preparation for what’s ahead. These types of moves take weeks if not months to play out, so once the ball has started rolling there is no way, NO WAY major players / Central Banks / institutions are going to “shift their plans” and “change direction” just because a single country has made a small interest rate hike! Not a chance!
If you ask me – the muted reaction to the New Zealand rate hike is literally a “smoking gun”.
Big boys are turning the boat, and nothing….NOTHING is gonna stop it.