The Reserve Bank of New Zealand left the interest rate unchanged at 2.50% as widely expected. What was not expected was the dovish tone of the statement.
NZD/USD fell around 100 pips initially and seems to be on the back foot, completing a big fall.
The RBNZ stated that it intends to keep rates low until the end of the year. This is similar to the Fed’s “low rates for an extended period†pledge. One of the reasons is lower inflation. Expectations are lower now.
In addition, the central bank clearly said that the high currency hurts exports. This is not the first time that a reference is made to the NZD, but this is still important.
NZD/USD fell from around 0.8260-0.8270 to as low as 0.8161 before bouncing a bit higher – currently a “dead cat bounceâ€, or if you wish, a “dead opossum†bounce.
Earlier in the year, NZD/USD broke higher to a 17 month high, but that triggered even more worried comments. Together with the strength of the US dollar, the NZD/USD pair is now back to levels seen in December 2012.
