The ‘Kiwi’, which posted widespread declines after economic data for China and the Eurozone dented the outlook for global recovery, recouped losses during local trade in response to comments made regarding New Zealand’s own economic recovery.
The New Zealand Dollar exchange rate was trading in the region of 0.8466 against the US Dollar as of 09:50 am GMT
Although some industry experts expected Graeme Wheeler, Governor of the Reserve Bank of New Zealand, to put heavy emphasis on the risks attached to an ‘overvalued’ New Zealand Dollar (as he did last month) his comparatively positive comments inspired ‘Kiwi’ gains.
Wheeler stated: ‘Despite continued strains in Europe and disappointing data in some countries most recently, global financial market sentiment remains buoyant and the medium-term outlook for New Zealand’s overall trading partner GDP growth remains firm. […] Growth in the New Zealand economy has picked up. Consumer spending has increased and rebuild activity in Canterbury is gaining momentum.’
After the RBNZ issued its rate announcement, in which the benchmark rate was left unaltered at 2.5 per cent, the New Zealand Dollar strengthened by 0.7 per cent against the US Dollar, achieving 84.60 US cents. The ‘Kiwi’ also posted a notable gain against its Australian counterpart.
But Wheeler’s words weren’t all positive.
He also asserted: ‘House price inflation is high in some regions, despite prices already being elevated. The Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of supply. Fiscal consolidation is constraining aggregate demand. In addition, drought has lowered agricultural production and will likely also negatively affect farm output in the coming season. International dairy prices have spiked higher in response to the drought, but these price gains could prove temporary.’
Wheeler did make reference to the New Zealand Dollar’s current strength: ‘The New Zealand dollar remains overvalued and is higher than projected in March. Further appreciation has occurred partly in response to the announcement of a substantial quantitative easing programme in Japan. The high New Zealand dollar continues to be a significant headwind for the tradables sector, restricting export earnings and encouraging demand for imports.’
But as strategist Imre Speizer noted, the RBNZ ‘has probably disappointed those in the market expecting further emphasis on the high New Zealand Dollar.’
Wheeler then confirmed that a rate hike is not on the cards until after 2013 comes to a close.
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