The New Zealand dollar dropped initially after the Reserve Bank of New Zealand made a monetary policy announcement today, hinting at possibility of an interest rate cut in the future. But the currency rebounded almost immediately and is trading now far above the opening level.
The RBNZ left its main interest rate unchanged at 1.5% today, as was widely expected. But the central bank signaled in the statement that it may yet cut rates in the future:
Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives.
While the comments led to a decline of the New Zealand currency immediately after the announcement, the kiwi rebounded quickly afterwards. Analysts had various theories about why that could happen. Some speculated that traders noticed that the bank said “may be needed”, not “is likely”, though it is important to note that the RBNZ said used the word “likely” later in the statement:
The members agreed that more support from monetary policy was likely to be necessary.
Others argued that market participants focused on the positive comments about New Zealand’s economy. Indeed, the bank stated:
While global economic conditions had deteriorated, the Committee noted that domestic GDP growth had held up more than projected in the March 2019 quarter. The members discussed disparities in growth across sectors of the economy, with construction strong and services weak. The members also discussed whether some of the factors supporting growth in the quarter would continue.
Whatever the reason, the New Zealand dollar is currently trading strong versus its most-traded rivals.
NZD/USD climbed from the open of 0.6639 to 0.6681 as of 12:26 GMT today after touching the low of 0.6592 intraday. EUR/NZD traded at 1.7006 after opening at 1.7115 and rising to the daily maximum of 1.7206. NZD/JPY was at about 71.95 following the drop from the opening of 71.13 to the daily minimum of 70.78.
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