Sharechat Logo

New Zealand dollar falls sharply after RBNZ dampens rate hike expectations

Thursday 9th February 2017

Text too small?

 The New Zealand dollar fell after the central bank dampened rate hike expectations and moved to jawbone the currency lower.

The New Zealand dollar was trading at a three week-low of 71.96 US cents as at 5pm from 73.05 cents as at 8am in Wellington and 73.04 cents late yesterday. The trade-weighted index dropped to 78.32 from 79.52 yesterday.

The central bank kept rates on hold at 1.75 percent and while it pointed to higher interest rates down the track it's not planning to move any time soon, saying monetary policy will remain accommodative for a "considerable period."

The bank is pointing to increases, but only 25 basis points by March 2020. It also fired several shots at the currency saying it remains higher than is sustainable for balanced growth and, together with low global inflation, continues to generate negative inflation in the tradables sector.  "A decline in the exchange rate is needed," it said. 

It was a "triple blow to the NZD: not-hawkish statement, ongoing concerns about the strength of the NZD on tradable inflation and the new one was leaving the cash rate where it is for a 'considerable period'," said Annette Beacher, head of economic research in Asia at TD Securities in Singapore. "The latter was the headline 'shock' for analysts and hence the NZD sell," she said.

Looking ahead, Paul Dales, chief Australia & NZ economist for Capital Economics, said that even though the central bank suggested the next move in interest rates is more likely to be up than down "there is plenty of scope for market interest rate expectations to fall back and the New Zealand dollar to weaken".

Prior to the central bank's statement money markets had fully priced a rate increase later this year, although economists weren't tipping the central bank to move until next year. Pricing fell to 50 percent in the minutes after the release and Dales said it need to move further.

"Overall, the financial markets may need to adjust their view that rates will be raised by 0.25 percent at least once this year and twice next year," he said. That should help weaken the kiwi to around 60 US cents, he said.

The kiwi fell to 94.40 Australian cents from 95.64 cents. It declined to 57.49 British pence from 58.40 pence yesterday and decreased to 67.31 euro cents from 68.35 cents. The kiwi traded at 80.68 yen from 81.87 yen and was at 4.9423  yuan from 5.0262 yuan.

New Zealand's two-year swap rate fell 7 basis points to 2.28 percent while the 10-year swaps fell 8 basis points to 3.38 percent.

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

MARKET CLOSE: NZ shares follow Asian markets higher on renewed hopes for China-US resolution
Housing Ministry head hints he acted against departed KiwiBuild head Stephen Barclay
NZ dollar heading for 1% weekly slide as outlook weakens
Currency frozen in multi-million dollar Cryptopia theft
NZ manufacturing activity hits highest level since April
Tilt affirms guidance; Dec qtr production misses long-term expectations
NZ dollar extends slide as Philly Fed lifts sentiment in US
January 18th Morning Report
MARKET CLOSE: NZ shares get further lift from positive offshore markets
NZ dollar extends decline amid mixed data

IRG See IRG research reports