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.
No comments yet
MARKET CLOSE: NZ shares fall as Meridian faces declining hydro storage
NZ dollar gains as rising consumer prices deflate chance of rate cut
Treasury Secretary to sit in on RBNZ monetary policy reviews
Cancer test firms Pacific Edge, TruScreen give market some cheer
Bridges denies Ross allegations, welcomes police inquiry
Second round of Overseas Investment Act review juggles competing tensions
Jami-Lee Ross accuses Bridges of corruption, resigns to trigger by-election
First NZ cuts Michael Hill earnings forecast after weak sales
Focus on 'low-hanging fruit' for emissions reduction - Methanex
NZ 3Q inflation higher than expected but driven by one-offs