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NZ Dollar Drops After RBNZ Hints at Additional Monetary Easing

September 23, 2020 at 11:04 by Vladimir Vyun

Many 100-dollar billsThe New Zealand dollar dropped today, falling against some of its rivals, like the US dollar, for the third consecutive day. The currency declined following the monetary policy announcement from the nation’s central bank. The Reserve Bank of New Zealand confirmed that it continues to prepare additional measures to stimulate the New Zealand economy.

The RBNZ left its monetary policy unchanged, with the key interest rate staying at 0.25% and the Large Scale Asset Purchase at NZ$100 billion. Such a decision was widely expected by market participants. The central bank was pessimistic on the economy, arguing that it will require an additional stimulus to recover after the COVID-19 pandemic:

In line with the weak underlying international and domestic economic conditions, the Committee expects a rise in unemployment and an increase in firm closures, as resource reallocation continues. Members agreed that monetary policy will need to provide significant economic support for a long time to come to meet the inflation and employment remit, and promote financial stability. They also agreed they are prepared to provide additional stimulus.

The statement elaborated on the measures the bank is preparing:

Reflecting the possible need for further monetary stimulus, the Committee noted the progress being made on the Bank’s ability to deploy additional monetary instruments. The instruments include a Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets. The Committee agreed that these instruments can be mutually supportive in bolstering economic activity. Members also agreed that the alternative instruments can be deployed independently, and noted that the FLP would be ready before the end of this calendar year.

The plans for additional stimulus were also known to markets, and some analysts had predicted that the New Zealand dollar may rise despite the outlook for more monetary easing. And indeed, the kiwi jumped immediately after the RBNZ made its policy announcement. Yet the rally was extremely short-lived, and the currency has retreated almost immediately, starting to move to the downside. As of now, it trades below the opening level against all of its most-traded rivals.

NZD/USD dropped from 0.6634 to 0.6590 as of 11:02 GMT today. EUR/NZD rallied from 1.7639 to 1.7764, bouncing from the daily low of 1.7582. NZD/JPY was up from 69.53 to 69.89 intraday but has pulled back to 69.22 by now.

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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