The Reserve Bank of New Zealand did not disappoint Forex market participants, raising its Official Cash Rate today. The New Zealand dollar soared as a result, rising against the euro for the seventh consecutive trading session, even though such move was widely expected.
The RBNZ increased its main interest rate by 25 basis points to 3.25 percent as was expected. The rate statement was not particularly favorable to the kiwi as Reserve Bank Governor Graeme Wheeler voiced an opinion that the currency should weaken:
The exchange rate has not yet adjusted to weakening commodity prices, but is expected to do so. The Bank does not believe the exchange rate is sustainable at current levels.
Additionally, the central bank predicted in its Monetary Policy Statement that annual inflation will be at 1.7 percent in this quarter, below the previous estimate and the bank’s target of 2 percent.
Despite all the negative remarks, the New Zealand dollar rallied as Wheeler was still speaking about raising interest rates further:
Inflationary pressures are expected to increase. In this environment, it is important that inflation expectations remain contained and that interest rates return to a more neutral level.
NZD/USD rallied from 0.8534 to 0.8643 (1.3 percent), and NZD/JPY jumped from 86.94 to 88.23 (1.2 percent) as of 2:41 GMT today. EUR/NZD crashed from 1.5818 to 1.5664 (1.0 percent), trading near the lowest level since May 2013.
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