The New Zealand dollar sank today against other major peers due to speculations that the Reserve Bank of New Zealand is not going to raise interest rates and may even perform a rate cut.
Reserve Bank assistant governor Dr John McDermott said that the central bank is not considering raising borrowing costs currently:
Before considering any tightening in monetary policy we would need to be confident that increased capacity utilisation and labour market tightness was generating, or about to generate, a substantial increase in inflation.
Moreover, an interest rate cut is possible:
Evidence of weakening demand and domestic inflationary pressures would prompt us to consider lowering interest rates.
As hopes for a hike of lending rates was a major component in the NZ dollar’s strength, prospects for lower rates mean that the currency has lost most of its support and may go significantly lower.
NZD/USD sank from 0.7656 to 0.7553 and NZD/JPY tumbled from 91.84 to 90.64 as of 13:52 GMT today.
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