The New Zealand dollar was moving down for the most part of Wednesday’s trading session but bounced sharply after the central bank maintained interest rates unchanged and promised a period of stable monetary policy.
As was expected, the Reserve Bank of New Zealand kept its main interest rate (the Official Cash Rate) at 3.5 percent today. Governor Graeme Wheeler said in the accompanying statement:
The domestic economy remains strong.
At the same time, he was not pleased by the current strength of the New Zealand dollar:
On a trade-weighted basis, the New Zealand dollar remains unjustifiably high and unsustainable in terms of New Zealandâs long-term economic fundamentals. A substantial downward correction in the real exchange rate is needed to put New Zealandâs external accounts on a more sustainable footing.
Yet the Governor reiterated outlook for stability of the monetary policy in the foreseeable future:
Our central projection is consistent with a period of stability in the OCR. However, future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.
While this means that the kiwi will not receive support for expectations for higher borrowing costs (which were driving the currency up last year), traders still thought that the wording of the statement is positive enough to make the NZ dollar attractive.
NZD/USD rose from 0.7269 to 0.7285 as of 21:39 GMT today after falling to 0.7189 earlier. NZD/JPY went up from 88.06 to 88.50 following the drop to 87.21.
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