The Reserve Bank of New Zealand does not like the strength of the kiwi dollar. This is not new. Comments complaining about NZD are quite common from governor Wheeler, from his colleagues and also from the government.
But this time it was slightly different, with a comment directly aimed at interest rates, and the impact was certainly seen.
Dr. John McDermott, an assistant to the governor, said that the Bank is not considering any increases to interest rates at present. So far, the thought was that they were in a long pause within a tightening cycle. Rates were hikes 4 times in 2014.
And as this pause became a long one, some doubted that a 5th rate hike would come anytime soon. This comment sent markets speculating that the RBNZ could U-turn and even cut rates, following the Reserve Bank of Australia.
This is emphasized by another headline he produced, saying that evidence of weaker demand would prompt consideration of lower interest rates.
This is especially true if you take a creative interpretation of this comment: “monetary policy to remain stimulatory”, or as other CBs say “accommodative”.
Is a rate cut coming to New Zealand? Not so fast. But markets move faster, and perhaps that’s exactly what the bankers at Wellington want.
NZD/USD dropped sharply and reached 0.7547 before bouncing back up a bit. The pair traded nearly 200 pips higher just yesterday. The initial push lower came from upbeat US data, but the RBNZ had the crucial contribution to the free-fall.
Here is how it looks on the chart:
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