RBNZ Rate Cut Is Coming, But Will It Affect The Kiwi?


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(NZ) RBNZ Gov Bollard: High rate of inflation is in the past, house price boom is unlikely and would be damaging; RBNZ surprised at duration of low rates

  • Sees NZ private debt aftermath for some time, debt build up helping keep growth rates low.
  • High export prices have lifted the Kiwi (NZD).
  • NZ may deal with private debt increase for a time.
  • Private sector deleveraging is under way.
  • Not much economic rebalancing has occurred, partly due to high NZD.

(NZ) New Zealand PM Key commented that the Central bank had the scope to lower interest rates. The Governments position was to avoid fiscal stimulus. Too strong of NZD currency would probably stop the economy but currency gains ease pressure on central bank and give it options.

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June 20th: (NZ) NEW ZEALAND Q1 GDP Q/Q: 1.1% V 0.4%E (5-yr high); Y/Y: 2.4% V 1.3%E

July 16th: (NZ) NEW ZEALAND Q2 CONSUMER PRICES (CPI) Q/Q: 0.3% V 0.5%E; Y/Y: 1.0% V 1.1%E (lowest since Q4 of 1999)

Jul 24th: (NZ) NEW ZEALAND JUN TRADE BALANCE (NZ$): 331M V 2.0ME; YTD: -747M V -1.0BE; Exports: 4.20B v 3.83Be; Imports: 3.87B v 3.82Be  (prior revised higher from 4.11B to 4.18B)

How to interpret these headlines?

With recent data showing a strong economy (1.1% Q1 GDP) with low inflationary pressure at 1.1% year on year, plus a strong trade balance for the recent month, RBNZ is not likely to hike rates any time soon, especially considering the demand on NZD currency on the back of recent risk appetite sentiment…

However, as stated by both RBNZ Bollard and PM Key, NZD’s strength could be detrimental to its economy and future growth, and that’s why most analysts are now calling for a potential rate-cut towards the end of 2012 or early 2013, although I would doubt that a RBNZ rate cut would drive exchange rates lower, as even at 2.0% interest rate, NZD would still offer much better return than Euro, Sterling, and USD.  I would be still be looking to BUY on dips for NZD, following the risk sentiment.

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About Henry Liu

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