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NZD Plummets After RBNZ Decision, What's Next?



RBNZ Summary


In line with market expectations, the RBNZ left interest rates unchanged at 0.25% and maintained the size of its Large Scale Asset Purchase program (NZ$60bn, Quantitative easing program). The overall minutes portrayed a clear dovish bias overall however there were some positive points mentioned for the New Zealand economy, including;

  • 'A marginally, stronger starting point for the NZ economy.’

  • ‘Improvements in the outlook since May’

  • ‘Larger than expected stimulus.’


However, these were followed by dovish comments, including:

  • ‘working towards ensuring a broader range of monetary policy tools would be deployable in coming months’

  • Concern about the appreciation of the NZD

  • The omission from the Minutes of the explicit commitment that the OCR (official cash rate) will remain at 0.25% until 1Q2021.




The Minutes noted, “staff are working towards ensuring a broader range of monetary policy tools would be deployable in the coming months, including a term lending facility, reductions in the OCR, and foreign asset purchases, as well as reassessing the appropriate quantum of the current LSAP.” These comments do not suggest any imminent measures in the near-term, weighing on the NZD.


NZD Reaction


NZD/USD fell sharply lower from 0.65036 and has remained under pressure since (currently trading at 0.64188). This is likely due to the suggestion that there will not be any imminent measures in the short term.


What’s Next For The NZD?


The RBNZ expressed concern over a stable NZD currency, with worries that a high exchange rate could damage export revenue and consequently hinder New Zealand’s economic recovery. The RBNZ said they might have to use more ‘direct’ measures in order to devalue the NZD, adding after that that they wouldn’t increase QE unless it were economically feasible.


However, in this environment, the reason for initiating QE to boost economic recovery can be used, when the legitimate reason Is to flood the market with NZD dollars and devalue the currency. Due to this, there is a good possibility NZD will continue to remain under pressure. 

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