New Zealand dollar softer after RBNZ stands pat on rates

The New Zealand dollar has lost steam in morning trading on Thursday as investors come to terms with the prospect of the country’s central bank refraining from interest rate rises this year.

The Reserve Bank of New Zealand kept interest rates steady at a record low 1.75 per cent earlier this morning, as expected. The kiwi dollar is trading 0.2 per cent lower today at $0.7028, having finished Wednesday’s session, which just managed to incorporate reaction to the interest rate decision, fractionally higher.

Graeme Wheeler, the central bank’s governor, said that while the New Zealand dollar had weakened by 4 per cent since February, partly thanks to softer dairy prices, “further depreciation is needed to achieve more balanced growth.”

So far this year, the New Zealand dollar is up 1.4 per cent against the greenback.

Paul Dales at Capital Economics thinks the bank’s decision to remain on hold once again emphasises that interest rates “won’t be raised either this year or next”, highlighting the bank’s comment that “monetary policy will remain accommodative for a considerable period.”

“The financial markets are slowly getting the message, but there is still plenty of scope for market interest rate expectations to fall further and for the New Zealand dollar to weaken, perhaps from US$0.70 now to around $0.60,” Mr Dales said.

Markets are pricing in a roughly 38 per cent chance the RBNZ will raise interest rates to 2 per cent by the end of this year, and the chances of one 25 basis point rise in 2018 is almost entirely baked in, according to market pricing tracked by Bloomberg.

Against its neighbour, one New Zealand dollar was buying 91.84 Australian cents, a 0.10 per cent increase today and a potential fifth straight day of gains for the kiwi currency against the dollarydoo.