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IMF Report States NZD 20% Overvalued on High Interest Rates

IMF Report States NZD 20% Overvalued on High Interest Rates

2011-05-09 22:38:00
David Liu, DailyFX Research,
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The International Monetary Fund published in a statement today that it considers the New Zealand dollar be currently worth around 20% more than relative estimates of its relative equilibrium exchange rate. The strength of the Kiwi dollar is due central bank benchmark rate, currently at 2.50%, the second highest of major currencies, after Australia’s 4.75%.

However, the IMF outlook does state that the NZD may return to “normal” levels as major central banks start raising their own rates as the economy improves.

The IMF report coincided with the treasury’s budget report. The March cash deficit was reported at NZD 12.41 billion, NZD 102 million more than the amount forecasted in December. The shortfall was largely due to lower tax revenue after the February 22nd Christchurch Earthquake, as well as costs of the NZD 1.5 billion Earthquake commission.

The New Zealand dollar dropped as much as 40 pips immediately after the report, although at the time of writing it as recovered some of its losses on expectations that better Chinese imports will increase demand for New Zealand’s raw materials and goods.

Document2_body_Picture_3.png, IMF Report States NZD 20% Overvalued on High Interest Rates

5 minute NZDUSD chart. Chart generated with FXCM Strategy Trader.

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