With recent domestic data signalling positive progress in New Zealand’s economic recovery, investors were hoping that a rate increase would be on the horizon. In anticipation of this the ‘Kiwi’ has advanced on several of its most traded rivals over the past several weeks.
However, after the Reserve Bank of New Zealand outlined an unexpected plan these gains were largely reversed.
The New Zealand Dollar to Pound Sterling exchange rate was trading in the region of 0.5092 as of 09:50 am GMT
The central bank intimated that it intends to introduce bank lending restrictions in order to safeguard the economy from a potentially disastrous housing bubble, and the New Zealand Dollar plummeted as a result.
RBNZ Governor Graeme Wheeler stated: ‘While higher policy rates may well be needed next year as expanding domestic demand starts to generate overall inflation pressures, this is not the case at present. Any overnight cash rate increases in the near term would risk causing the New Zealand Dollar to appreciate sharply, putting further pressure on New Zealand’s export and import competing industries. […] Provided LVR restrictions help to dampen house-price inflation, they will also assist monetary policy. As such, they increase the flexibility available to the RBNZ in determining the timing and magnitude of future adjustments to interest rates.’
Wheeler also argued that the South Pacific currency is ‘over-valued relative to what would be sustainable long term’.
The NZD/GBP exchange rate hit a low of 0.5078 pence per Dollar
The lending restrictions, which will come into effect from October 1st, will significantly reduce the likelihood of the central bank raising interest rates.
As chief economist Nick Tuffley explains; ‘If they were to whack up interest rates right now, when rates are still so low elsewhere, there is that risk that the currency gets pushed up further. They will be hoping that these restrictions have an impact on house prices and reduce the need to put interest rates up.’
In response to the development the ‘Kiwi’ recorded its largest decline against its US counterpart for six-weeks and hit a low of 0.5078 pence against the Pound.
Losses against the Australian Dollar were limited as that asset also declined in reaction to comments issued by a central bank. In the Reserve Bank of Australia’s latest meeting minutes it was implied that the ‘Aussie’s direction would play an integral role in influencing policy.
Tomorrow’s credit card spending data for New Zealand is likely to inspire additional ‘Kiwi’ movement as the week progresses.
Current New Zealand Dollar (NZD) Exchange Rates:
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The New Zealand Dollar/US Dollar Exchange Rate is currently in the region of: 0.7980 <
The New Zealand Dollar /Euro Exchange Rate is currently in the region of: 0.5972 <
The New Zealand Dollar/Pound Sterling Exchange Rate is currently in the region of: 0.5095 <
The New Zealand Dollar /Australian Dollar Exchange Rate is currently in the region of: 0.8816 <
The US Dollar/ New Zealand Dollar Exchange Rate is currently in the region of: 1.2522 >
The Pound Sterling/New Zealand Dollar Exchange Rate is currently in the region of: 1.9608 >
The Euro/ New Zealand Dollar Exchange Rate is currently in the region of: 1.6728 >
The Australian Dollar/New Zealand Dollar Exchange Rate is currently in the region of: 1.1349 >
The Canadian Dollar/New Zealand Dollar Exchange Rate is currently in the region of: 1.1943 <
(Correct as of 09:50 GMT)
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