FOREX-Dollar stabilizes as investors heed New Zealand’s hawkish reminder

By Tom Westbrook

SYDNEY, October 5 (Reuters)The dollar stabilized on Wednesday after a sharp rate hike in New Zealand threw cold water on hopes of a pause or a slowdown in the US Federal Reserve’s intentions for aggressive hikes.

The dollar suffered its heaviest setback in more than two years on Tuesday, but returned to center stage after delivery from the Reserve Bank of New Zealand (RBNZ). a fifth consecutive increase of 50 basis points (bp).

Even the New Zealand dollar was boosted only briefly. The kiwi USD=D3 jumped 1.3% before falling back to $0.5731. euro EUR=EBS fell 0.2% to $0.9963. The British pound’s rally faltered as it fell 0.5% to $1.1425.

The movement and tone of the RBNZ contrasted with that of the Reserve Bank of Australia surprisingly low 25 basis point increase a day earlier, which had fueled hopes that the US Federal Reserve could also slow the rises and fuel the dollar sell-off.

“Just as yesterday’s weaker-than-expected rise in the RBA added to the reduction in hawkish bets from the Fed, the RBNZ’s hawkish signal could remind markets that tackling inflation is still the top priority for many banks. power plants,” said Maybank analyst Saktiandi Supaat.

“A more synchronous dovish tilt among major central banks on growth fears may be premature.”

The dollar index =USDdown about 4% since hitting a record high of 114.78 last week, has stabilized at 110.37.

Demand for the safe-haven dollar had fallen in recent days as the mood in global markets improved over speculation Britain’s new finance minister Kwasi Kwarteng after backing down on a proposed tax break for high earners , could make further adjustments to a mini-budget that sent bond and currency markets into a tailspin last week.

After recovering nearly 11% from last week‘s record lows, the pound’s rally appears to be running out of steam, dealers said.

Analysts were cautious about the magnitude of the real changes in Britain’s fiscal outlook and the real magnitude of the Australian rate signal, leaving the dollar’s decline open to a reversal.

US Federal Reserve Governor Philip Jefferson reiterated overnight that inflation was the main target of policymakers and that growth would suffer from efforts to reduce it.

US jobs data due Friday will be the next major indicator of the likely path of US rates.

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Currency rates at 02:45 GMT

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(Reporting by Tom Westbrook. Editing by Lincoln Feast & Simon Cameron-Moore)

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