NZD Offered Post RBNZ Hike, While CAD Bids On BoC Hawkish Hold

OVERVIEW : Wednesday, September 2nd, 26’

Markets remained defensive as US-Iran tensions escalated further, with Iran targeting US bases in Iraq and Bahrain with missiles and drones, while Kuwaiti air defences also confronted hostile drones. The IRGC also said two tankers were blown up after striking mines in the Strait of Hormuz. Trump responded with a warning of a much stronger response if Iran retaliates again, although he later said the renewed campaign would not continue for too long and that oil prices would come down. Crude closed broadly flattish on the day, while precious metals moved higher as the geopolitical backdrop remained elevated. Diplomatic headlines remained mixed, with Iran reiterating that it does not reject negotiations but wants the US to fulfil its commitments before taking steps to reopen Hormuz. Saudi Arabia also urged all sides to halt the escalation and return to negotiations. Elsewhere, the RBNZ hiked rates as expected but failed to provide the hawkish guidance markets were looking for, sending NZD lower. The BoC held rates unchanged but kept a hawkish forward stance, with inflation remaining the main focus given elevated oil prices, while tariffs were played down as relatively contained and affecting only around 5% of overall trade with the US.

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US DOLLAR

USD outperformed in the early sessions, with the Dollar initially finding some support before giving back the gains as more constructive headlines came through. Fed’s Williams adopted a dovish tone on CNBC, saying the Fed was “in a good place” and that the data is “not screaming the neutral rate has risen,” which took some of the support away from the recent hawkish rate expectations. US data was also softer, with ADP Employment Change at 38K vs. 47K expected, down from 44K previously. The weaker labour-market reading added to the dovish tone from Williams and made it harder for USD to hold the early-session strength, leaving the Dollar giving back most of its gains.

Data:

  • US ADP Employment Change (Aug) 38K vs. Exp. 47K (Prev. 44K).


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EURO

EUR was relatively flat on the day, with the currency getting some support from the increasingly hawkish ECB messaging but lacking enough momentum to push meaningfully higher. Makhlouf said the ECB must be prepared to lift rates further, highlighting his concern around Eurozone inflation above 3% and robust growth, while Nagel said markets see a more than 95% chance of a September rate hike, showing how firmly the hike is now priced. Spanish data was weaker, with Unemployment Change rising 44.419K vs. 15.4K expected, up from 19.517K previously. The softer labour-market reading offset some of the support from the hawkish ECB comments, leaving EUR broadly contained rather than extending higher on the day.

Data:

  • Spanish Unemployment Change (Aug) 44.419K vs. Exp. 15.4K (Prev. 19.517K).


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GREAT BRITISH POUND

GBP was subdued on the day, with the lack of fresh drivers for Sterling keeping the currency contained. With little in the way of a new domestic catalyst, GBP struggled to build any meaningful momentum and remained largely driven by broader market flows.

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AUSTRALIAN DOLLAR

AUD was supported into the late sessions, as the escalation started to quiet down and the broader risk tone improved. The move was also helped by stronger-than-expected domestic data, with Q2 GDP growth at 0.4% Q/Q vs. 0.3% expected, while annual growth came in at 2.1% vs. 1.8% expected. The stronger GDP print added to the rate-support story, with HSBC now seeing the RBA hiking in September and again in Q4, taking the cash rate to 4.85%. The combination of better domestic growth, a more hawkish RBA outlook and calmer geopolitical headlines helped AUD build some momentum later in the session.

Data:

  • Australian GDP Growth Rate QQ (Q2) 0.4% vs. Exp. 0.3% (Prev. 0.3%).
  • Australian GDP Growth Rate YY (Q2) 2.1% vs. Exp. 1.8% (Prev. 2.5%).


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CANADIAN DOLLAR

CAD outperformed on the day, with the BoC’s hawkish rhetoric providing support despite the Bank leaving rates unchanged at 2.25%, in line with expectations. Governor Macklem said inflation is too high and that the risks are shifting, while noting that the inflation pressure is very concentrated in gasoline and oil prices. The message kept the focus on inflation as the key driver for policy, with Macklem saying upcoming inflation data will guide future decisions and that the BoC is prepared to adjust monetary policy as needed. The hawkish tone helped CAD outperform through the session despite no change in the policy rate.

Data:

  • Canadian BoC Interest Rate Decision 2.25% vs. Exp. 2.25% (Prev. 2.25%)


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NEW ZEALAND DOLLAR

NZD was offered after the RBNZ meeting, with the Bank delivering the widely expected 25bps hike to 2.75% but failing to provide the hawkish surprise needed to push the Kiwi higher. The MPC reached a consensus on the decision and said that gradually removing monetary stimulus remains appropriate to bring inflation back to the 2% target midpoint while supporting growth and employment. The latest OCR projections were also broadly unchanged, with the rate seen at 2.81% in December 2026 vs. 2.84% previously, 3.12% in September 2027 vs. 3.11%, and 3.15% in December 2027, reinforcing the view that the hiking cycle is likely to remain gradual. Governor Breman said economic growth is expected to strengthen and broaden, while noting that the OCR is moving toward neutral but remains accommodative and that there is still uncertainty around the neutral rate. She also said the RBNZ is not on a preset course and may need time to assess the impact of the hikes already delivered, with the timing of further increases highly uncertain, although she still expects there will likely be another OCR hike. The combination of an expected hike, little change in the projections and cautious guidance left markets looking past the move, keeping NZD offered post-RBNZ.


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JAPANESE YEN

JPY outperformed on the day, with the Yen gaining on renewed expectations that the BoJ could move more aggressively at its September meeting. Takata, the known hawkish dissenter, said the BoJ needs to consider a broad range of options rather than just a 25bps hike each time, opening the door to a 50bps hike or back-to-back hikes. He also said the Bank needs to hike nimbly after assessing domestic financial conditions and developments overseas. His comments are worth putting into context, though, given his already hawkish stance and preference for getting the policy rate to 2.00% at a rapid pace, which is unlikely to represent the broader view of the Board. Ueda was more balanced, saying monetary conditions remain accommodative and that the BoJ wants to continue increasing rates, while avoiding comments on his recent discussion with Bessent or the strong market pricing for a September hike. JPY strength emerged around the US cash open without a clear headline driver, leaving some uncertainty over whether a rate check or possible intervention-related flow was behind part of the move. Overall, the hawkish Takata comments and Ueda’s lack of pushback against September hike expectations helped keep the Yen well supported.

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SWISS FRANC

CHF lacked any meaningful demand on the day, closing as a clear laggard on the day with greenback catching all defensive demand on the back of escalation in the middle east.