The New Zealand dollar climbed after the Reserve Bank of New Zealand left the Official Cash Rate unchanged. The fact that the central bank talked about the possibility of a rate cut in the future did not deter the currency’s rally.
The RBNZ provided no surprise, keeping its benchmark interest rate at 2.25%. The central bank talked about risk and uncertainties, both international (like global growth and commodity prices) and domestic (like inflation). As for New Zealand’s inflation, the bank stated that the exchange rate is too high and is hurting inflation, making it preferable for the currency to weaken:
The exchange rate is higher than appropriate given New Zealandâs low export commodity prices. Together with weak overseas inflation, this is holding down tradables inflation. A lower New Zealand dollar would raise tradables inflation and assist the tradables sector.
Moreover, the RBNZ signaled that a decrease of borrowing costs remains in the cards:
Further policy easing may be required to ensure that future average inflation settles near the middle of the target range.
Yet all that did not prevent the New Zealand dollar from going higher.
NZD/USD climbed from 0.6978 to 0.7086 as of 22:21 GMT today, and its daily high of 0.7112 was the highest in about a year. NZD/JPY surged from 74.90 to 75.71, reaching the high of 76.18. EUR/NZD dropped from 1.6237 to 1.6080, and before that the currency pair had touched 1.5995 — the weakest rate since January 1.
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