The New Zealand Dollar dropped against the USD following the Fed’s decision to continue tightening and the Reserve Bank of New Zealand’s decision to continue easing. In its September meeting, the monetary policy committee left interest rates unchanged and pointed to a continuation to the low interest rates policy. The rates have not been changed since 2016. In addition, the bank announced that the Official Cash Rate (OCR) will remain at these lows until 2020. When the change happens, the bank said that the direction will be to the upside or downside. Therefore, the decision by the Fed to tighten and the RBNZ to continue easing led to divergence in monetary policy.
In the monetary policy statement, the bank said that:
Employment is around its sustainable level and consumer price inflation remains below the 2 percent mid-point of our target, necessitating continued supportive monetary policy. Our outlook for the OCR assumes the pace of growth will pick up over the coming year, assisting inflation to return to the target mid-point.
Our projection for the New Zealand economy, as detailed in the August Monetary Policy Statement, is little changed. While GDP growth in the June quarter was stronger than we had anticipated, downside risks to the growth outlook remain.
This month, New Zealand has released mixed economic data. Yesterday, it reported that the trade deficit rose in August. This was caused by a decline in exports while imports increased. Business confidence improved a bit but remained in the negative territory. In the past one year, the confidence among business leaders has been in the negative territory. Last week, the second quarter GDP numbers were better than expected. The data showed that the economy rose by 2.8%, which was better than the expected 2.5%. In the previous week, the current account numbers were worse than expected. In the second quarter, the current account was at minus N$9.54 billion, which was worse than the expected minus N$8 billion.
Starting from April, the NZD/USD pair has been declining. In April, it was trading at 0.7400. This has declined to 0.6516. The decline was mostly because of the divergence in monetary policy between the Fed and the RBNZ. It was also because of the challenging period in trade because New Zealand relies heavily on imports. The thinking among investors was that the trade conflict would suppress the Chinese growth.
The post RBNZ Leaves Rates Unchanged Leading to a Lower Kiwi appeared first on Forex.Info.
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