New Zealand Dollar Little Changed as RBNZ Keeps Rates on Hold

THE TAKEAWAY:RBNZ Keeps Rates on Hold as Expected, Rhetoric Dovish > No Major Change to Policy Outlook > NZDUSD Dips Slightly But Quickly Recovers

As expected, the Reserve Bank of New Zealand announced that their official cash rate will remain at 2.5 percent. In a dovish policy statement, the central bank noted global market uncertainty and moderate growth in domestic markets as the cause for maintaining its key interest rate at record-low levels.

In the statement, the RBNZ Governor Alan Bollard said the European debt crisis are may cause an increase in borrowing costs for New Zealand banks while cautioning that the boost to the economy from the rebuild in the aftermath of the earthquakes in Canterbury may be delayed by recent aftershocks. The inflation rate has also remained low, standing below the 2 percent threshold. Finally, the central bank chief noted that the relatively high level of the New Zealand Dollar has hurt exporters, which account for close to 30 percent of the overall economy. Needless to say, a rate hike would likely boost the Kiwi, compounding that problem.

Following the release, NZDUSD fell slightly to reflect the dovish tone of the policy statement, but losses proved short-lived, with the as-expected outcome proving insufficient to derail the currency pair’s ascent in the aftermath of the FOMC monetary policy announcement.