The Pound to New Zealand Dollar exchange rate (GBP/NZD) grew by around 0.7 cents late last night in response to the Reserve Bank of New Zealand’s latest interest rate decision. The RBNZ maintained its current benchmark interest rate of 2.50% and stated that it plans to hold the cash rate at this record-low for the duration of 2013:
“We expect to keep the OCR unchanged through the end of the year”.
Over the last two months the ‘Kiwi’ Dollar has fallen by around 10 cents against Sterling as GBP/NZD has risen from 1.7708 on April 11th to 1.9720.
However, the strong value of the New Zealand Dollar was explicitly mentioned as one of the reasons for the RBNZ’s decision:
“Despite having fallen over the past few weeks, the New Zealand Dollar remains overvalued and continued to be a headwind for the tradeables sector”.
A strong domestic currency can damage a country’s export prospects, by making products more expensive to foreign buyers. The Central Bank also hinted that it could intervene further, if necessary, in order to keep the value of the ‘Kiwi’ Dollar down.
RBNZ Governor Graeme Wheeler also mentioned that the current escalation in house prices could lead to a bubble, with the potential to burst, and ascertained that he was trying to fight this phenomenon by regulating the capital ratios at banks and imposing restrictions on riskier mortgages. Wheeler cut the Central Bank’s 2013 growth forecast from 3.3% to 3.0% and raised its inflation forecast for 2014 from 1.7% to 1.9%. Imre Speizer of Westpac Banking Corp. said:
“This was not quite as hawkish as the market had expected and that’s why the ‘Kiwi’ is selling off a little bit”.
Indeed, the Pound’s 0.7 cent rally against the New Zealand Dollar following the Central Bank announcement came on a day of gains for the Antipodean currency. GBP/NZD had initially fallen by as much as -3.3 cents as the currency pair continued to fall from Tuesday’s 9-month high.
The Pound to New Zealand Dollar ran into a roadblock on Tuesday after breaching the psychologically significant 2.0000 level for the first time since September last year. GBP/NZD subsequently hit a weekly low of 1.9506 as investors opted to lock-in profits following the week of strong Sterling gains.
In immediate response to the RBNZ report, the New Zealand Dollar also fell by around -0.4 cents against the US Dollar (NZD/USD), -0.4 cents against the Australian Dollar (NZD/AUD), -0.3 cents against the Euro (NZD/EUR), -0.3 cents against the Canadian Dollar (NZD/CAD) and -0.6 cents against the Japanese Yen (NZD/USD).
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