The New Zealand dollar slipped lower against its US counterpart on Wednesday, as investors eyed the Reserve Bank of New Zealand’s interest rate decision due later in the day and as expectations for a USA rate hike continued to support the greenback.
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The Reserve Bank has, this morning, cut the Official Cash Rate, and warns further cuts are unlikely..
The New Zealand dollar was little changed ahead of the Reserve Bank meeting today where Governor Graeme Wheeler is expected to reduce the benchmark interest rate.
“Monetary policy needs to be accommodative to help ensure that future average inflation settles near the middle of the target range”, Wheeler said in Wellington.
While further OCR cuts look unlikely, there aren’t likely to be any increases soon.
The Kiwi dollar has strengthened against a basket of currencies since September, adding to downward pressure on import prices.
The New Zealand dollar shot up by about half a U.S. cent to US67c in the minutes following the announcement.
Growth in the New Zealand economy has softened over the year, it says, mainly due to lower terms of trade.
The kiwi was lower against the Australian dollar, with AUD/NZD rising 0.25% to 1.0884.
The euro was down 0.4 percent at $1.0843 EUR=, while the dollar edged up about 0.1 percent to 123.32 yen JPY=.
The bank said it assumed that as the economy weakened, consumers would “smooth their spending” but admitted there was a plausible risk that low interest rates and rising house prices could “increase confidence and willingness to borrow for consumption”. While growth has slowed, the property market remains overheated. Prices of dairy products are higher than where they were at the time of the September MPS, although are still short of the US$3,000 a tonne Fonterra Cooperative Group has said is needed to support its current forecast for the 2015/16 season of $4.60 per kilogram of milk solids.
The greenback climbed to its strongest level against the Russian ruble since late August, last up 2 percent at 69.42 rubles RUB=.
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House price inflation in Auckland remained high, posing a financial stability risk, but here were early signs that Auckland house price inflation may be moderating, it said.
