Despite positive economic data for New Zealand, the ‘Kiwi’ was unable to climb as investors kept their focus on exchange rate comments.
The New Zealand Dollar exchange rate was trading in the region of 0.8211 against the US Dollar as of 10:09 am
Yesterday the New Zealand Dollar dropped against the majority of its most traded peers as Reserve Bank of New Zealand Governor Graeme Wheeler commented on the negative effects of the currency’s strength.
Wheeler stated: ‘The overvalued New Zealand Dollar is undermining profitability in export and import competing industries, and worsening drought conditions are creating difficulty in much of the country’.
As a result of his dovish words the ‘Kiwi’ plummeted, shedding 0.8 cents against the US and Australian Dollar’s, 2.0 cents against the Pound, 1.0 cents against the Yen, and 0.7 cents against the Euro.
These comments were added to yesterday as assistant governor John McDermott alluded to the trials facing the economy, asserting: ‘Currently, monetary policy faces some big forecasting issues. One is the treatment of the exchange rate and its likely future path, which will have substantial effects on the economy.’
He went on to state: ‘An interest rate cut might help inflation return to target sooner. But such a cut would also probably exacerbate the current strength in house prices, risking further increases in private debt levels, potentially raising financial stability issues.’
Following McDermott’s remarks the New Zealand Dollar weakened modestly against its American counterpart despite a positive manufacturing report, although the currency did manage to recoup losses against the British Pound.
The most recent BNZ Performance of Manufacturing Index posted a gain of 1.1 points, taking the level to 56.3 in February – the highest reading for a year.
Craig Ebert, a senior economist with BNZ, said of the result: ‘The figures speak for themselves. The way some people are talking, we should be witnessing a very weak, to plunging, PMI. In fact, it’s improved to a more positive level […] with production being the fastest growing in more than eight years, we have good reason to expect a pickup in jobs to follow, especially with new orders picking up as well as they are.’
With drought concerns and exchange rate worries in the spotlight this better-than-expected data has taken a back seat, but with several pieces of influential New Zealand data scheduled for release next week the ‘Kiwi’ could experience volatility.
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