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NZ Dollar Dives After RBNZ Keeps Rates on Hold

May 10, 2018 at 11:03 by Vladimir Vyun

All NZD denominationsThe New Zealand dollar slumped against its major rivals today, falling to the lowest level since December versus its US counterpart, after the Reserve Bank of New Zealand kept interest rates unchanged and expressed dovishness in its statement.

The RBNZ left the main interest rate at the historically low level of 1.75% as was widely expected. The central bank revised the growth forecast lower. Gross domestic product is expected to rise by 2.8% in 2018 and by 3.1% in 2019. That is compared to the February assessment of a growth by 2.9% and 3.3% respectively. Consumer inflation is still expected to reach the central bank’s target of 2% in 2021.

Governor Adrian Orr suggested in the rate statement that he is not in a hurry to start increasing rates:

The emerging capacity constraints are projected to see New Zealand’s consumer price inflation gradually rise to our 2 percent annual target.

To best ensure this outcome, we expect to keep the OCR at this expansionary level for a considerable period of time.

Furthermore, he signaled in the Monetary Policy Statement that a rate cut remains possible:

The direction of our next move is equally balanced, up or down.

NZD/USD opened at 0.6951, slid to 0.6902 intraday, the lowest since December 12, and traded at about 0.6930 as of 10:56 GMT today. NZD/JPY fell from 76.30 to 75.81 before trading at 75.97. EUR/NZD jumped from 1.7035 to 1.7151.

If you have any questions, comments or opinions regarding the New Zealand Dollar, feel free to post them using the commentary form below.

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