The NZD/CAD currency pair scaled a fresh 21-week peak on Wednesday, after the Reserve Bank of New Zealand raised its forecast for peak interest rates and pushed back potential rate cuts, citing persistently high inflation.
The central bank left its official cash rate unchanged at 5.5% for a seventh consecutive policy meeting in May, in line with market expectations.
Yet, the RBNZ now expects interest rates to peak at 5.7% at the end of this year, compared to 5.6% forecast previously.
RBNZ policy makers acknowledged that restrictive monetary policy had eased capacity pressures and curbed consumer inflation.
Despite that annual headline inflation in the country decelerated to a nearly three-year low of 4% in the first quarter of 2024, it still exceeded the RBNZ’s target range of 1% to 3%.
Therefore, the official cash rate will need to remain at a restrictive level to allow inflation to move back within the target range in a reasonable time frame.
Meanwhile, the latest macro data out of Canada showed that annual headline consumer inflation had cooled to 2.7% in April, or the lowest level since March 2021, which bolstered expectations of a June rate cut by the Bank of Canada.
Currency Pair Performance
As of 7:31 GMT on Wednesday the NZD/CAD currency pair was edging up 0.40% to trade at 0.8347.
Earlier in the session, the minor Forex pair went up as high as 0.8383. The latter has been the pair’s strongest level since December 29th 2023 (0.8415).
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