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The kiwi has continued to strengthen following the RBNZ’s latest policy meeting where the Reserve Bank of New Zealand acknowledged stronger growth but said that loose policy is to stay. NZD/USD rose to fresh highs, hitting an intra-day high of 0.7384 which is within touching distance of the high from April 2018 at 0.7395, economists at MUFG Bank inform.

Key quotes

“The kiwi has derived some support from the RBNZ’s more upbeat economic outlook although they have stressed that they will maintain loose policy for longer. The RBNZ now views risks to the economic outlook as ‘balanced’ rather than ‘less skewed to the downside’. The RBNZ still sees one more quarter of GDP contraction in Q1 before the economy recovers more sustainably. The GDP forecast for this year was lifted to 4.0% up from 3.6%.”

“The more upbeat economic outlook prompted the RBNZ to drop the policy signal that ‘further monetary stimulus may be needed’ although they did maintain they are prepared to provide additional stimulus if necessary.”

“While we believe that the RBNZ is unlikely to lower rates further, the RBNZ has emphasized that stimulative settings will be maintained for a prolonged period of time, until it is confident of employment reaching the maximum sustainable level and inflation is sustainably around 2%.” 

“The RBNZ has acknowledged the stronger than expected economic recovery in New Zealand but is reluctant to bring forward plans for monetary tightening at the current juncture.”

“The RBNZ are understandably cautious that laying out plans to tighten policy well ahead of other major central banks would encourage an even stronger kiwi. The fundamentals though still point to further strength which the RBNZ can only dampen.”

 

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