The New Zealand dollar jumped yesterday and was trying to extend its rally today but failed to do so and has retreated by now. The reason for the jump was easy to pinpoint — the less certain outlook for negative interest rates from New Zealand’s central bank. The reason for the retreat is harder to identify but the most likely factor is the rally of the US dollar.
The Reserve Bank of New Zealand made a monetary policy announcement yesterday. As was widely expected, it kept its benchmark interest rate unchanged at 0.25%. The bank added more stimulus, though, announcing:
The Committee agreed that the additional stimulus would be provided through a Funding for Lending Programme (FLP), commencing in December. The FLP will reduce banksâ funding costs and lower interest rates.
While the central bank largely maintained its dovish stance, policymakers sounded more optimistic about the economy, saying:
Economic activity since the August Monetary Policy Statement, both international and domestic, has proved more resilient than earlier assumed.
The optimism affected the monetary policy outlook. While previously, analysts were almost certain that the RBNZ will cut interest rates into the negative territory, now they started to have doubts. Such doubts increased after today’s comments from RBNZ Assistant Governor Christian Hawkesby, who said that “less stimulus is required than we thought in August”. In general, markets are still pricing in a cut but there is less certainty that it will happen, and some analysts now predict that it will happen later than was previously expected, perhaps in August.
NZD/USD was up from 0.6881 to 0.6915 intraday but retreated to 0.6851 by 17:54 GMT today. EUR/NZD rallied from 1.7111 to 1.7225, bouncing from the daily low of 1.7046. The kiwi did not lose gains against all rivals, though, as for example GBP/NZD was trading at 1.9144, falling from the opening of 1.9205, though the pair still has bounced from the session minimum of 1.9097.
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