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The Kiwi Remains Subdued Ahead of RBNZ Rate Decisions
By Isaac Ndegwa
The New Zealand Dollar has remained muted this week as the world awaits the RBNZ’s rate decisions. Even the excellent credit card spending figures released on Tuesday were not good enough to spur some excitement around the Kiwi. The pound has also continued to slide out of favor with investors owing from poor trade data in the UK but it still looks stable against the Kiwi. The Kiwi has for that matter remained one of the few currencies that the sterling has been able to subdue so far as the week’s trading continues. Prices have already factored in the expected rate cut
There have been high bets on a rate cut in the RBNZ and the currency’s price movements have already tried to factor that in. The economic updates released in the July 21st meeting showed that New Zealand still needs further policy easing. Policy easing will be inevitable because the country still struggles to meet the inflation ranges. There have been calls to cement the future average inflation levels for the economy to progress well.
New Zealand inflation rates have been recording below targets in the last seven quarters. The RBNZ has its targets at between 1 and 3 percent but the last releases have alarmingly remained below one percent. The 1 to 3 target range is ideal for the country because a strong NZD means more pressure for the dairy and manufacturing sector and low import prices. The downside to that however is that the country will endure low trade-able goods inflation. The RBNZ is in a position where objectives are hard to meet if the currency remains strong.
China’s shrinking imports cause worries over New Zealand’s export chances
Some selling pressure on the Kiwi continued to build after news that Chinese exports and imports reduced in July. China is one of New Zealand’s greatest trade partners and a drop in Chinese imports often mean that New Zealand’s hopes for exporting more goods to China are lowered. The selling pressure is expected to remain over the next few days, with investors having more confidence that the Reserve Bank of New Zealand will opt for further easing on the interest rates.
Part of the reasons why the NZD remains strong and easing is needed stems from the actions offshore. Other central banks like Japan’s have continued to adjust their rates lower. The US Fed has also avoided rate hikes lately. Strong US jobs data and the policy easing stance from the BoE further kept the NZD subdued since Friday.
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By Isaac Ndegwa
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