RBNZ Holds Rate at 2.5 percent; Kiwi Pares Loss
THE TAKEAWAY: RBNZ Holds Key Rate at 2.5 percent > Domestic Economy Grew at Modest Pace andGlobal Condition Deteriorated > Kiwi Pares Loss
The Reserve Bank of New Zealand decided to hold the Official Cash Rate at 2.5 percent for the seventh straight month since it last cut interest rate by 50 percentage points from 3.0 percent in March, 2011. RBNZ benchmark rate decision came in without any surprise as all of fifteen economists polled by Bloomberg News projected an interest rate to remain unchanged in December. Along with rate decision, the central bank also cut their projection on New Zealand outlook, indicating that economy might recover at lower pace next year.
RBNZ Governor Allan Bollard cited “moderate pace” of domestic growth and cooling inflation pressure as main reasons to keep the key rate on hold. Besides, he expressed concern on “deteriorated” global condition, especially an intensified sovereign and bank debt crisis in the Eurozone and “softening international activity” in emerging and commodity-exporting countries. New Zealand economic activity disappointedly expanded at a modest rate of 0.1 percent in the second quarter from its surprisingly robust first-quarter pace of 0.9 percent. However, inflation was partly curbed, dropping to 4.6 percent annual rate in the third quarter from 5.3 percent in the previous quarter. Though the number was still well above 1-3 percent target range, Governor Bollard forecasted the inflation to have returned to target band in the December quarter.
EUR/USD 1-minute Chart: October 6, 2011
Charts created using Strategy Trader– Prepared by Trang Nguyen
New Zealand dollar, which depreciated about 6.6 percent in the three months as currency traders significantly reduced bets on a rate rise within the next twelve month, has weakened versus most of major currencies in North American trading today. Nonetheless, the kiwi immediately pared it loss when the central bank announced to maintains its key rate at 2.5 percent at 15:00 Eastern Time. As can be seen from the NZDUSD 1-minute chart above, the currency pair instantly jumped approximately 45 pips from 0.7660 to 0.7805. The Relative Strength Indicator crossing above the 70-level twice signaled that currency traders aggressively bought the kiwi while cutting their greenback holdings. At the time this report was written, the New Zealand dollar was traded at 0.78006 dollars, down 0.08 percent.
--- Written by Trang Nguyen, DailyFX Research Team for DailyFX.com
To contact Trang, email firstname.lastname@example.org
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.