Analysts expect the Kiwi to consolidate around the current level but the Reserve Bank of New Zealand policy decision scheduled for Thursday (23 July) could be watched for any surprise impact on the currency. “This implies the economy won’t even need to weaken further for the RBNZ to reduce rates below 3%, most probably at the next meeting in early September”, wrote Capital Economics’s Paul Dales this morning.
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“At this point, some further easing seems likely”, RBNZ Governor Graeme Wheeler said in a statement.
Here’s the monetary policy statement in full. “We have also seen a bit of US dollar weakness overnight so the world had probably gone too far on the currency front and with the substantial positioning against the New Zealand dollar, the rebound is exacerbated”.
For the second consecutive month, the Reserve Bank of New Zealand has reduced its official cash rate by 25 basis points.
New Zealand’s economy was currently growing at an annual rate of around 2.5 percent, supported by low interest rates, construction activity, and high net immigration, but the annual outlook was now softer than it had been in June.
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“Between the good news of making or beating expectations but giving some cautious guidance going forward, the market may be just sitting and waiting to see how the rest of the (earnings) announcements come in”, said Tim Dreiling, senior portfolio manager at U.S. Bank Wealth Management.
Mr Wheeler kicked off an easing cycle last month as inflation stayed below his target band and falling dairy prices lead to a deterioration in the country’s terms of trade.
“Increased building activity is underway in the Auckland region, but it will take some time for the imbalances in the housing market to be corrected”.
The currencies are under pressure as commodity-exporting nations cut interest rates to support growth after raw-materials prices plunged 45 percent from their 2011 highs.
A reduction in the OCR is warranted by the softening in the economic outlook and low inflation.
Those differences are key because while commodity exporters are easing policy – which tends to weigh on their currencies – the Fed is preparing to raise borrowing costs from the zero- to-0.25-percent range they’ve been in since 2008. The 10-year swap rate fell to 3.68 per cent from 3.72 per cent. A further significant downward adjustment is justified.
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New Zealand’s two-year swap rate increased to 2.89 per cent at 5pm in Wellington from 2.86 per cent on Wednesday. Here’s the 5-minute tick chart.
