UOB Global Economics & Markets Research, led by economist Lee Sue Ann, has revised its forecast regarding the Reserve Bank of New Zealand (RBNZ). The banking group now projects a 25 basis point increase in the Official Cash Rate (OCR) to 2.75% during the upcoming September monetary policy meeting. This marks a shift from its earlier call, which anticipated the rate staying unchanged at 2.50%, even as risks were recognized to lean toward further tightening.
Inflation Concerns Drive Policy Expectations in New Zealand
The adjustment comes as headline inflation in New Zealand remains stubborn at 4.1%, significantly exceeding the central bank's target band of 1% to 3%. Despite a relatively soft labour market, broad-based price increases and earlier hawkish guidance from policymakers suggest the RBNZ is inclined to act promptly rather than delay monetary tightening. The central bank had previously indicated that further reduction in monetary stimulus would likely be required.
Delivering another 25 basis point rate hike in September would reinforce the central bank's inflation-fighting credentials while retaining policy flexibility for subsequent meetings should price pressures cool down faster than anticipated. UOB expects any further tightening beyond September to proceed at a gradual pace, with decisions remaining heavily dependent on incoming economic data.
Foreign Exchange Trends: Pound and Euro Show Gains
In global currency markets, GBP/USD rebounded at the start of the week to test the 1.3550 level, recovering part of the steep losses that drove it to a multi-day low on Friday. Weakness in the US Dollar provided backing for the currency pair, though upside momentum remains restrained by geopolitical tensions involving the US and Iran.
Meanwhile, EUR/USD gathered strength toward 1.1600 during European trading hours. The pull-back in the US Dollar occurred despite hawkish statements from Federal Reserve Chair Kevin Warsh regarding inflation management. Market participants are now focusing on the upcoming preliminary Consumer Price Index (CPI) inflation release from Germany for further direction.
Commodities and Crypto: Gold Stabilizes while Dogecoin Struggles
Gold held onto its recovery near the $4,450 per ounce zone during Monday's European session, pushing away from sub-$4,400 levels. A softer US Dollar provided underlying support for the precious metal, but upside potential appears capped as rate hike expectations remain elevated following Fed Chair Kevin Warsh's Friday remarks on curbing inflation.
In the cryptocurrency space, Dogecoin traded near its key support area around $0.081 after dropping more than 12% last week. On-chain metrics reveal that large whale addresses have been taking profits following the recent price surge. While derivatives data indicates mild underlying strength, technical momentum indicators suggest that bullish energy is waning, leaving Dogecoin with a mixed short-term outlook.
Energy Market Milestone: US Diesel Crack Spread Hits Record Peak
While crude oil prices have appeared relatively calm compared to earlier months, the middle distillate market is displaying significant volatility. The US diesel crack spread, which measures the differential between ultra-low sulphur diesel futures and WTI crude oil, climbed above $100 per barrel for the first time on record, hitting an intraday peak slightly over $102.00.
