New Zealand Dollar Forecast Improves despite RBNZ Interest Rate Cut

Published: Thursday, 11 August 2016 15:00 BST - Written by John Cameron

STORY LINK New Zealand Dollar Forecast Improves despite RBNZ Interest Rate Cut

Reserve Bank of New Zealand (RBNZ) Interest Rate Cut Sparks New Zealand Dollar Movement

The Reserve Bank of New Zealand (RBNZ) announced late last night that it was reducing its benchmark Official Cash Rate (OCR) by 25 basis points to a new record low of 2.00%. The move was widely anticipated, but the improvement for the New Zealand Dollar (currency : NZD) against the Pound Sterling (currency : GBP) which followed during the overnight Asian session was less expected.

GBP/NZD Exchange Rate Falls to 1.7806

The move caused the Pound New Zealand Dollar exchange rate to dip to an intraday low of 1.7806 GBP NZD during European trading this morning and the pair now rests tentatively on the brink of a key level of support just above its multi-year low. Any further shift Southwards will send GBP NZD down into a No Man’s Land where there are no significant levels of technical support.

The New Zealand unit managed to firm against Sterling in spite of the rate cut thanks to the ‘wait and see’ nature of RBNZ Governor Graeme Wheeler’s accompanying notes. Wheeler sent out a message that this might not be the final RBNZ rate cut in its current cycle, concluding that,

‘Monetary policy will continue to be accommodative. Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range. We will continue to watch closely the emerging economic data.’

Bets Interest Rates Will be Left on Hold Support New Zealand Dollar (NZD) Exchange Rates

However, Wheeler’s earlier observation that, ‘house price inflation remains excessive and has become more broad-based across the regions, adding to concerns about financial stability,’ raised speculation from analysts that these further policy loosening measures might not include decreases in the domestic cost of borrowing.


Wheeler added fuel to the flames of these rumours by confirming that, ‘the Bank is consulting on stronger macro-prudential measures that should help to mitigate financial system risks arising from the rapid escalation in house prices.’ Judging by last night’s price action for GBP NZD, the market certainly appeared to accept the line that more rate cuts might not be forthcoming and the forecast for the New Zealand Dollar has improved as a result.

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