Forex Trading: RBNZ Guides Path in NZD/USD

Forex Trading: RBNZ Guides Path in NZD/USD

The Reserve Bank of New Zealand (RBNZ) is trying to balance its monetary policy in order to counteract the effects of a low inflation and housing bubble.  They released their latest statement in July 2016 about how they will act over the next few months in order to support the New-Zealand economy and keep the housing bubble under control.

This is critical information for those trading forex online, as these trends will continue to guide market activity in the NZD/USD.  The RBNZ, according to this Washington Post article, will “launch new restrictions nationally beginning 1st of September to fight a housing bubble. […] The RBNZ wants to limit further the amount that can be lent against the value of property.”

Potential Housing Boom

The RBNZ is reluctant to fuel a housing boom by further lowering borrowing costs and they plan to tighten their restrictions on home lending costs; however, the RBNZ also has to keep a watchful eye on a persistently weak inflation.

The inflation rate has been lower than 1 % since the 4th semester of 2014 and remained below 2 % since 2011.  It currently stands, according to this RBNZ graph, at 0.4 %, which is far from the target inflation of 1-3 % set by the RBNZ.  As the inflation rate stands far its objective, it might mean that further monetary easing policies may be put in place later this year in order to lift the inflation rate.  However, some economists did hint at the fact that the latest policies put in place by the RBNZ may make it harder to reach the intended target inflation.

Monetary Policy Meetings

The next meeting of the RBNZ’s monetary policy is on the 11th of August and various economists are instead expecting further rate cuts.  Interest rates are currently set at 2.25 %: economists expect it to go as low as 1.5 % during the next year.

However, the inflation rate is not the only worry for the RBNZ as the currency fell to a 6-week low in July 2016; on the 20th of July, the RBNZ delivered a “much anticipated statement that has clearly signalled a change in forward guidance and drastically increased the odds of a rate cut in August,” as this news article put it.  After this statement, the kiwi dollar fell as much as 1 % to its lowest since 7th of June 2016.

Moreover, the last point of worry for the RBNZ is the dairy sector, which is struggling with a very low inflation and rising exchange rate, adding pressure to an already glooming sector and lowering needed investments.

As the RBNZ, in its 20th of July statement said: “the high exchange rate is adding further pressure to the dairy and manufacturing sectors and, together with weak global inflation, is holding down tradable goods inflation.  This makes it difficult for the Bank to meet its inflation objective.  A decline in the exchange rate is needed.”