The New Zealand dollar jumped today, reaching the highest level since May 1 against the Japanese yen and the strongest since February 2008 versus the US dollar, as the nation’s central bank raised its Official Cash Rate.
The Reserve Bank of New Zealand increased its main interest rate by 25 basis points to 2.75 percent today. Such decision was widely expected by market participants. The bank was very positive about the current state of the nation’s economy:
New Zealandâs economic expansion has considerable momentum, and growth is becoming more broad-based.
As a result of inflationary pressure, the RBNZ decided that higher borrowing costs are prudent:
While headline inflation has been moderate, inflationary pressures are increasing and are expected to continue doing so over the next two years. In this environment it is important that inflation expectations remain contained. To achieve this it is necessary to raise interest rates towards a level at which they are no longer adding to demand.
As a bit of bad news, the central bank was thinking that the currency is too strong and expected it to weaken in the future:
The high exchange rate remains a headwind to the tradables sector. The Bank does not believe the current level of the exchange rate is sustainable in the long run.
The kiwi as unfazed by such comments, paying more attention to the positive part of the statement.
NZD/USD climbed from 0.8522 to 0.8551 as of 5:53 GMT today, reaching the high of 0.8566 intraday. NZD/JPY advanced from 87.56 to 87.77. EUR/NZD was down from 1.6306 to 1.6292, while its daily minimum was at 1.6225.77
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