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NZD/USD Remains Weak Helped by Central Bank Rhetoric

NZD/USD Remains Weak Helped by Central Bank Rhetoric

Nick Cawley, Strategist
NZD/USD Remains Weak Helped by Central Bank Rhetoric

Outlook for NZDUSD - Bearish

  • The Central Bank left rates unchanged but hawkish talk pushed the NZ dollar lower.
  • Moody’s affirms New Zealand’s Aaa issuer rating.
  • See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for next week on the DailyFX Webinar Calendar.

The New Zealand dollar looks set to resume its downward path, and the Reserve Bank of New Zealand will not stand in its way. The NZD/USD is relatively unchanged on the week but a hawkish press statement from the central bank on March 23, after it left rates unchanged, points to the pair moving south and testing the recent lows.

After Reserve Bank governor Graeme Wheeler left interest rates unchanged at 1.75% on Thursday, he said,

The trade-weighted exchange rate has fallen 4 percent since February, partly in response to weaker dairy prices and reduced interest rate differentials. This is an encouraging move, but further depreciation is needed to achieve more balanced growth.”

Wheeler added that monetary policy will remain accommodative for a considerable period.and while numerous uncertainties remain, policy may need to adjust according.

A recent report from rating’s agency Moody’s Investor Services gave the Government of New Zealand the thumbs-up and re-affirmed the country’s Aaa rating. Moody’s said that it expects New Zealand to be among the fastest growing Aaa-rated economies in the coming years. They agency added that while the economy is small and open, in the event of shocks the economy “responds swiftly and positively to a weaker exchange rate and lower interest rates, as seen in recent years. Exchange-rate and interest-rate sensitive sectors such as tourism and construction generate economic activity and jobs to support income.

After the recent post-FOMC relief rally, the Kiwi dollar continues to weaken. Support may kick-in at March’s low print of 0.68903 before December 2016’s low of 0.68621 comes into focus.

Chart: NZDUSD Daily-Timeframe (November 23, 2016 – March 24, 2017)

NZD/USD Remains Weak Helped by Central Bank Rhetoric

Chart by IG

--- Written by Nick Cawley, Analyst

To contact Nick, email him at Nicholas.cawley@ig.com

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