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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