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NZD/USD is changing hands below 0.71, hit by New Zealand’s decision to curb the increase in house prices. Subsequently, short yields are correcting lower in New Zealand as RBNZ rate hike expectations are scaled back sharply, per MUFG Bank.

Key quotes

“The sell off for the New Zealand dollar has accelerated after technical support at around the 0.7100-level was broken which opens the door to a return to the 0.7000-level for the first time since the end of last year.”  

“The New Zealand dollar has been undermined both by more risk averse trading conditions and the scaling back of RBNZ rate hike expectations. The trigger for the sharp correction lower in short-term yields was the announcement from the New Zealand government that it has taken action to dampen activity in the housing market. The government will remove tax incentives for investors to make speculation less lucrative, and unlock more land to help increase housing supply.”

“The government measures will help to take pressure off the RBNZ to address risks to financial stability from the housing market, and thereby delay the need to hike rates in response. Overall, the developments will help to dampen RBNZ rate hike expectations and further upside potential for the kiwi in the near-term.”