The New Zealand Dollar to US Dollar (NZD/USD) exchange rate jumped to a two-week high overnight after the Reserve Bank of New Zealand (RBNZ) interest rate decision. Although the central bank opted to keep rates on hold at 1.75% as expected, policymakers stated that they expected inflation to reside in the middle of its 1-3% target band a year quicker than previous forecasts. As a result, the Kiwi climbed away from lows of 0.6898 seen in Wednesday’s trading, and attained a pinnacle of 0.6974 versus the US Dollar.
Following the rate announcement investors are keen to see how quickly the central bank will be to hike interest rates again. Acting RBNZ Governor announced that a rate hike could occur in June 2019 rather than in September that year, taking into consideration the weaker NZD exchange rate and new government policies.
‘Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.’
‘The exchange rate has eased since the August statement and, if sustained, will increase tradables inflation and promote more balanced growth.’
When it came to inflation, Spencer stated that ‘underlying inflation remains subdued’, but didn’t reiterate previous statements which said headline inflation was expected to ebb further in coming months. New Zealand inflation resided at 1.9% in September and the RBNZ now forecasts the annual Consumer Price Index (CPI) will reside at 1.8% in December, and 1.5% in the March 2018 quarter. The previous expectations were for a more modest 1.3% and 0.7%.
The New Zealand Dollar has fallen by around 2.3% on a trade-weighted index since the new Labour party government was convened, and currently resides around 6.0% lower than the bank had expected in the September quarter.
Meanwhile, in the US, markets are awaiting the weekly Initial Jobless Claims and Continuing Claims ecostats to indicate how the labour market is performing. It’s been a relatively quiet week in terms of economic data, but investors will be looking towards Friday’s University of Michigan Sentiment Index as a high-tier ecostat. Economists have forecast a rise from 100.7 to 100.9, which may offer the USD/NZD exchange rate some support.
The New Zealand Dollar to US Dollar (NZD/USD) exchange rate is trending in the region of 0.6963.