Swedish crown, New Zealand dollar up as central banks disappoint doves

The New Zealand dollar and Sweden’s crown rose after their central banks broke with the growing caution of the world’s major monetary-policy makers, surprising traders who expected more dovish signals.

The New Zealand dollar was the stand-out performer after the neutral tone of the Reserve Bank of New Zealand’s policy announcement.

The Swedish crown also rose after the Riksbank said the economic outlook had not changed much since December and it would stick to its plan to raise interest rates in the second half of 2019.

“The Fed’s policy pivot isn’t shared by every central bank in the world, and markets have reacted to ‘business as usual’ from both the RBNZ and Riksbank,” said Kit Juckes at Societe Generale.

Signalling another major policy shift for the Federal Reserve after it put off raising rates further, Cleveland Fed President Loretta Mester said on Tuesday the central bank would make plans to stop letting its bond holdings diminish.

The kiwi rallied as much as 1.7 percent to $0.6852 as traders rushed to cover short positions. Sweden’s crown rose half a percent against the euro and the dollar, to 10.436 and 9.2195, respectively.

TRADE HOPES

Elsewhere, investors chased riskier assets on signs of a detente in the U.S.-China trade war. That led to a pause in the dollar’s recent rally after an eight-day winning streak ended overnight.

The dollar index was unchanged at 96.712. It stood at $1.1328 against the euro.

U.S. President Donald Trump said on Tuesday that he could see letting the March 1 deadline for reaching a trade agreement with China “slide for a little while,” if the two sides were close to a complete deal.

Together with a possible deal to avert another partial U.S. government shutdown, the optimism sent stocks soaring.

Jane Foley, currencies strategist at Rabobank, cautioned that there was “a lot of evidence that global growth is slowing and a lot of evidence to be suspicious of an end to the U.S.-China trade war. There will still be a long way to go.”

The Australian dollar, a barometer for global risk assets, added 0.3 percent to $0.7120.

The dollar rose 0.2 percent versus the yen to 110.72.

Sterling hovered near $1.29 after inflation for January came in lower than expected.

The currency was unmoved after the UK’s chief Brexit negotiator was overhead saying British lawmakers would face a choice between Prime Minister Theresa May’s Brexit deal or a long extension to the March deadline for leaving the bloc.

Source: Reuters (By Tommy Wilkes; Editing by Larry King)