2016-07-19 11:35:49

The NZD sharply fell last Thursday after the news that RBNZ would present economic situation assessment on 21 July. Today, the decline continued due to a statement made by RBNZ that the Bank was going to tighten mortgage conditions. Real estate market is overheated, especially in the big cities of New Zealand; mortgage loans amount up to 55% of the assets in the banking system. RBNZ plans to introduce new restrictions in the mortgage lending program from 1 September. Graham Wheeler, governor of the RBNZ said today that banking system is under threat from the housing market.

Economists believe that planning restrictions the RBNZ wants to have freedom for lowering interest rates in the country without causing additional overheating of the housing market. Yesterday’s inflation data for Q2 was weaker than the forecast, which gives ground for the further decline in the interest rate.

Consumer price index (CPI), published on Monday, which is the key indicator of inflation, was at the level of 0.4% against the forecast of 0.5% and the rise of 0.2% in the previous quarter.

In case of the positive price index for dairy products from the Global Dairy Trade, which will be released today, the NZD will go up.

New Zealand is the largest exporter of dairy product in the world market.

Export of dairy products amount to 18% of the total exports of the country. Therefore, the NZD is highly correlated with dairy product prices.

In March, Central Bank of New Zealand had lowered key interest rate to the current level of 2.25%. In the following comments Central Bank expressed concerns about further deterioration of the world economic prospects and decline in inflation expectations in New Zealand. Inflation expectations in New Zealand have declined and prospects for the world economy, especially after Brexit, have deteriorated.

On Thursday, the RBNZ will release assessment of economic situation. Economists believe that it may suggest another reduction in the interest rate next month. Next meeting of the RBNZ is scheduled for August 10.

NZD/USD: economic situation assessment by RBNZ will be presented on Thursday  Fundamental analysis for 19.07.2016.