Kiwi slides after a dovish RBNZ statement

The kiwi declined sharply in overnight trading after the Reserve Bank of New Zealand (RBNZ) delivered its interest rates decision. As expected, the bank left interest rates unchanged at the 1.75% level where they have been since June 2016.

What moved the currency was the accompanying statement that pointed to a rate cut in the near future. In the statement, the bank blamed this on the weakening global economy, which has led to slightly lower demand. This is important because New Zealand is largely an export-driven economy, with the key partners being Australia and China. It also blamed this on the weaker internal demand.

In the statement, the bank concluded that:

The balance of risks to this outlook has shifted to the downside. The risk of a more pronounced global downturn has increased and low business sentiment continues to weigh on domestic spending. On the upside, inflation could rise faster if firms pass on cost increases to prices to a greater extent.

We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation.

It also added that the ongoing low interest rates and increased government spending will likely provide a boost to the economy. In recent months, the government has continued to boost its spending on infrastructure, housing, and transfer payments.

Amidst the challenges, there is some hopes that the economy is doing well. While the unemployment rate rose to 4.3%, there are hopes that it will end the year below the 4% range. Yesterday, the trade numbers released were better than expected. The numbers showed that exports increased to $4.82 billion, which was higher than the expected $4.7 billion. At the same time, imports declined to $4.80 billion, which led to a trade surplus of $12 million.

After the decision, the NZD/USD pair declined by more than 1.5% from a high of 0.6925 to a low of 0.6795. This was the lowest level since early this month. This price was deeply inside the lower line of the Bollinger Bands while the RSI has moved sharply in the oversold territory. The pair could move up slightly although the overall trend could remain downwards.

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