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New Zealand Dollar Tumbles as RBNZ Disappoints Rate Hike Bets

New Zealand Dollar Tumbles as RBNZ Disappoints Rate Hike Bets

Daniel Dubrovsky, Strategist

Talking Points:

  • The New Zealand Dollar depreciated as the RBNZ held rates unchanged in May as expected
  • Recent positive economic news-flow out of New Zealand helped build RBNZ rate hike bets
  • The central bank practically dismissed those hopes, mentioning recent CPI gains as temporary

Have a question about why the New Zealand Dollar did what it did? Join a Q&A webinar and ask it live!

The New Zealand Dollar depreciated against its major counterparts after the RBNZ held rates unchanged in May as widely expected. While that was priced in, recent positive economic news-flow out of the nation has helped build interest rate hike expectations. In particular, the unemployment rate fell to 4.9% in the first quarter and CPI reached 2.2% y/y in the fourth quarter of 2016.

The Reserve Bank of New Zealand mentioned that the increase in headline price growth was mainly due to higher tradable inflation, particularly petrol and food prices. This was viewed as only temporary and that it may lead to some variability over the year ahead. However, the longer-term view is that prices are anchored at around 2 percent.

Looking ahead, the central bank reiterated that monetary policy will remain accommodative for a considerable period. Interestingly, they removed the international outlook as one of their numerous reasons for uncertainty remaining. In the last monetary policy statement, it was referenced to as being a particular threat.

The RBNZ forecasts that the average official cash rate will rise in the third quarter of 2019. The markets were seeing this happening earlier, by early next year in fact. With 2-year local bond yields tumbling as the announcement crossed the wires, hopes of any near-term rate hikes seemed to have been thrown out the window.

New Zealand Dollar Tumbles as RBNZ Disappoints Rate Hike Bets

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