New
Zealand is a relatively small country. It has a population of almost 5 million
and a GDP of more than $205 billion. It is an important country because of its
key trading partners and its location. As a key trading partner with China and
Australia, the country is often viewed as a proxy of the two economies.
Today,
the kiwi declined to the lowest level since October last year after the Reserve
Bank of New Zealand (RBNZ) delivered its interest rates decision. As investors
had expected, the bank lowered rates by 25 basis points to 1.50%. This was the
lowest level the rates have been ever. In the March meeting, the bank had said
that a rate cut would be on the table if the economy continued to show
weakness. This was confirmed by the bank’s governor, Adrian Orr in a Bloomberg
interview last week.
In
the accompanying statement, the bank said that it was concerned about the pace
of global growth. This demand has lowered the demand for the goods sold by New
Zealand. The bank also blamed the slowdown in the domestic economy. This was
attributed to the lower growth in exports, reduced population growth, lower net
immigration, and the continued softness in the housing sector. In addition, the
weak operating environment has led to lower housing spending. Companies too
have continued to experience tighter profit margins and competition for
resources. Most importantly, the companies have faced the challenge of lack of
access to skilled labor.
All
these issues have led to the cooling of the country’s economy. In 2018, the
economy slowed to 2.3% from 3.4% in the previous year. The recent data show
that the country’s inflation rate declined to 1.5% in the first quarter. At the
same time, hiring declined unexpectedly. The unemployment rate remains at
historical lows. In the statement, the bank added that:
A key downside risk relating to the growth
projections was a larger than anticipated slowdown in global economic growth,
particularly in China and Australia, New Zealand’s largest trading partners.
The Committee agreed that the projections adequately captured the observed
global slowdown and its impact on domestic employment and inflation.
In
response to the RBNZ, the NZD/USD pair declined to a low of 0.6525. This was
the lowest level since October last year. The price then moved higher to a high
of 0.6587. On the chart below, this price is below the 21 and 50-day
exponential moving averages. The MACD has declined sharply and remained below
the neutral line. The pair might continue to move lower as the RBNZ continues
to sound more dovish.
The post New Zealand Dollar Tanks After RBNZ Cuts Rates appeared first on Forex.Info.