2016-08-23 11:51:12

After Governor of the RBNZ Graeme Wheeler said today that he saw no need for a rapid easing of monetary policy, NZD/USD pair jumped by more than 0.5% to the level 0.7320. Since the opening of the European session, the pair has continued to grow, and the price nearly touched the level 0.7340.

Wheeler's speech was moderately balanced. Although Wheeler noted that the central bank expects another moderate decline in the official interest rate, as well as that the RBNZ is still committed to achieving the target inflation, the expectations of market participants about another sharp decrease in the rate by 0.5% were dispelled.

Earlier in August, the RBNZ cut its official interest rate by 0.25% to a new low of 2.0% and announced its commitment to a loose monetary policy. Back in late July, the RBNZ presented a report stating that the long-time low inflation and the high exchange rate of the New Zealand currency, that are increasing pressure on the milk and processing industry, are a negative factor for the development of the national economy. Graham Wheeler then noted that « further easing of monetary policy will be required to ensure that the average inflation rate is around the middle of the target range», which is 1% -3%.

Now, market participants expect the RBNZ key interest rate to be cut to 1.50% by August 2017.

Housing prices in New Zealand are growing, especially in large cities, and the rapid decline in interest rates could further heat up the real estate market. And it will be a constraining factor to the accelerated rate cut. According to market participants, the expected rate cut by 25 basis points is already marketed in the New Zealand dollar quotes. Despite the current rate of 2.0%, it remains one of the highest among advanced economies, and this will also contribute to the attractiveness of New Zealand currency for investors.

The restrained Fed's policy on interest rate rises in the US, despite the active verbal intervention by the Fed on the possibility of an early rate hike, will weaken the US dollar on the currency market.

Thus, in the long term, at least until the end of the year, we should expect positive dynamics of NZD/USD pair.

NZD/USD: the RBNZ will be cautious. Fundamental analysis for 23.08.2016