The New Zealand dollar sank today after the Reserve Bank of New Zealand raised its key Official Cash Rate but signaled that it is going to pause the interest rate hike cycle. The central bank also said that the current exchange rate is “unjustified”.
The RBNZ lifted its benchmark interest rate by 25 basis points to 3.5 percent, exactly as was expected. Yet at the same time Reserve Bank Governor Graeme Wheeler stated:
It is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level.
He also mentioned the current high value of the New Zealand dollar, voicing opinion that it is excessive:
With the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall.
The major part of the currency’s strength was derived from expectations of continuous rate hikes, meaning that the kiwi will have hard time keeping gains after that supporting factors was removed. The RBNZ still has hawking bias, and the NZ dollar may yet regain its strength in the future when the monetary tightening cycle will resume, but for now the currency trades near the lowest level in a month.
NZD/USD tumbled from 0.8677 to 0.8574 as of 19:02 GMT today, trading near the lowest level since June 12. EUR/NZD jumped from 1.5467 to 1.5700. NZD/JPY plunged from 88.17 to 87.31, touching the low of 86.92 intraday — the weakest price since June 11.
If you have any questions, comments or opinions regarding the New Zealand Dollar,
feel free to post them using the commentary form below.
