THE TAKEAWAY: The Reserve Bank of New Zealand holds monetary policy unchanged > Policy officials expect low CPI figures to bounce back underscoring decision > Kiwi trades higher
The New Zealand Dollar traded higher versus its major counterparts as the Reserve Bank of New Zealand opted to keep the overnight cash rate unchanged at 2.50 percent. Reserve Bank Governor Wheeler said “domestic GDP continues to expand at a modest pace” whereas “annual CPI inflation has fallen to 0.8 percent”, the lowest rate of price increase in nearly 13 years. However, the central bank does expect consumer prices to rise back toward the 1 to 3 percent medium term target likely underscoring their decision to keep monetary policy unchanged.
The probable scenario prompting policy makers to cut rates in the future would likely be catalyzed by depressed CPI figures below target alongside slowing economic activity levels. Forex traders may take a different course of action from today’s response if they anticipate reduced yields in the Kiwi currency, but for now as long as the central bank remains relatively hawkish, the Kiwi should retain its most attractive feature – yield.
AUD/NZD, 15 Minute Chart
NZD/USD, 15 Minute Chart