The New Zealand dollar dropped today as the nation’s central bank kept monetary policy unchanged, refraining from an interest rate hike. At the same time, the tone of the statement was very hawkish and suggested that monetary tightening will occur soon.
The Reserve Bank of New Zealand kept its key interest rate at 2.5 percent. Governor Graeme Wheeler was very upbeat in the statement and hinted that a rate hike is not far away:
While headline inflation has been moderate, inflationary pressures are expected to increase over the next two years. In this environment, there is a need to return interest rates to more-normal levels. The Bank expects to start this adjustment soon.
Some analysts think that such comments mean that the central bank will start raising borrowing costs as soon as March. So why is the New Zealand currency so weak? Most likely this is because traders have hoped for a rate increase in January and were disappointed by the lack of action from the RBNZ.
NZD/USD fell from 0.8210 to 0.8154 and NZD/JPY dropped from 83.97 to 83.52 as of 7:30 GMT today. EUR/NZD rose from 1.6627 to 1.6707.
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