The New Zealand Dollar (NZD) fell to a three-week low against the US Dollar (USD) on Thursday as speculation increased that the Reserve Bank of New Zealand (RBNZ) could use next week’s interest rate review to signal a slowdown in its run of interest rate rises.
The ‘Kiwi’ was also softer against the Pound (GBP).
The New Zealand currency fell away from its near 30-year high levels on Wednesday as economists began to doubt their assessments for the South Pacific nation’s economy.
A sharp fall in dairy prices knocked confidence that the economy will continue to perform strongly and some economists changed their forecasts to a sourer outlook.
‘Prices have fallen in 10 out of 11 auctions. We had long forecast lower prices for New Zealand’s key commodity, but even we are a little aback by the magnitude in the year to date,’ said Raiko Shareef, a currency strategist at Bank of New Zealand.
The falling dairy prices and a slowing construction sector have caused some economists to lower their expectations that the Central Bank will raise interest rates further at the next policy meeting.
A higher interest rate would support the currency but as doubts have crept in regarding a rise the ‘Kiwi’ has dropped.
Despite the concerns most analysts still expect the RBNZ to raise rates by a quarter of a point to 3.5% later this month. Bank governor Graeme Wheeler is likely to tone down his rhetoric for further raises however.
Investors will also be keen to see whether Wheeler will try and talk down the strength of the New Zealand Dollar as exporters are starting to feel the pinch.
‘We have got an increasingly unjustified strong currency, especially after the most recent decline in commodity prices. The currency is so high, that fundamentals have turned against it. It’s just a matter of time before we see some downside,’ said Bevan Graham from AMP Capital.
Also weighing upon the ‘Kiwi’ were comments made by US Federal Reserve Chairman Janet Yellen who signalled that interest rates in the world’s largest economy could rise sooner than forecast if the US economy continues to show improvement.
Against the Pound the ‘Kiwi’ was trading at a nine day low.
New Zealand Dollar (NZD) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
New Zealand Dollar,
,US Dollar,0.8685 ,
New Zealand Dollar,, Pound Sterling,0.5072 ,
New Zealand Dollar,,Euro,0.6421 ,
New Zealand Dollar,,Australian Dollar,0.9268 ,
Euro,, New Zealand Dollar ,1.5533 ,
US Dollar,, New Zealand Dollar ,1.1508 ,
Australian Dollar,, New Zealand Dollar ,1.0774 ,
Pound Sterling,, New Zealand Dollar ,1.9682 ,
[/table]
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