The New Zealand dollar, as well as other currencies, dropped against its US counterpart yesterday after the Federal Reserve ended the third round of quantitative easing. The outlook for a period of stable interest rates in New Zealand itself was not helping the currency either, resulting in further drop at the current trading session.
As was expected, the Reserve Bank of New Zealand kept its main interest rate at 3.5 percent. The central bank mentioned in the statement that “global economy is growing at a moderate rate”, but also noted that “recent data suggests some softening in the major economies, apart from the United States”. As for domestic growth, the RBNZ said that it was above the trend for this year. Despite the huge drop of the New Zealand currency, policy makers were still unhappy with the exchange rate, saying:
Lower commodity prices and increased global financial market volatility have taken some pressure off the New Zealand dollar. However, its current level remains unjustified and unsustainable and continues to constrain growth in the tradables sector. We expect a further significant depreciation.
As a result, the statement concluded:
A period of assessment remains appropriate before considering further policy adjustment.
The kiwi, which had already been weakened by the Fed monetary announcement, weakened further after the RBNZ statement.
NZD/USD dropped from 0.7810 to 0.7789 as of 00:57 GMT today. GBP/NZD advanced from 1.6174 to 1.6202, while NZD/JPY declined from 84.98 to 84.88.
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