- AUD/NZD is gaining momentum around 1.1075 in the Asian session on Wednesday, up 0.63% on the day.
- The RBNZ kept the official cash rate (OCR) unchanged at 5.50% at its July meeting on Wednesday, as widely expected.
- RBA’s hawkish stance lifts Australian dollar against Kiwi.
The AUD/NZD pair is attracting some buyers near 1.1075 during Asian trading hours on Wednesday. The pair is gaining momentum after the Reserve Bank of New Zealand (RBNZ) kept its cash rate unchanged at its July monetary policy meeting.
The New Zealand Dollar (NZD) is lower as the RBNZ decided to keep the official cash rate (OCR) steady at 5.50%, as widely expected in markets. This marked the eighth consecutive meeting with no rate changes. According to the minutes of the RBNZ interest rate meeting, the board signals a risk that domestically driven inflation could be more persistent in the near term. The central bank expected headline inflation to return to the 1-3% target range in the second half of this year. Meanwhile, New Zealand swaps imply 25 basis points (bps) of RBNZ rate cuts for October versus 16 bps before the RBNZ statement.
Elsewhere, weaker economic data from China is putting some selling pressure on the Kiwi, China’s proxy. China’s Consumer Price Index (CPI) rose 0.2% year-on-year in June, compared with a 0.3% rise in May, below the consensus of 0.4%. On a monthly basis, CPI inflation came in at -0.2% month-on-month in June versus the previous reading of a 0.1% decline, worse than the -0.1% expected.
On the Australian front, the Reserve Bank of Australia (RBA)’s hawkish stance is providing some support to the Australian Dollar (AUD). Recent higher-than-expected inflation data boosted expectations that the RBA would hike a rate by 25 bps at the September 24 meeting.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are to achieve and maintain price stability – achieved when inflation, as measured by the Consumer Price Index (CPI), falls within the range of 1% to 3% – and to support maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) in accordance with its objectives. When inflation is above target, the bank will try to control it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they generate higher yields, making the country a more attractive place for investors. Conversely, lower interest rates tend to weaken the NZD.
Employment is important to the Reserve Bank of New Zealand (RBNZ) because a tight labour market can fuel inflation. The RBNZ’s objective of “maximum sustainable employment” is defined as the highest use of labour resources that can be sustained over time without creating an acceleration of inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more rapidly, requiring the MPC to raise interest rates to keep inflation under control,” the central bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can deploy a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to purchase assets (usually government or corporate bonds) from banks and other financial institutions with the aim of increasing the domestic money supply and stimulating economic activity. QE typically results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the central bank’s objectives. The RBNZ used it during the Covid-19 pandemic.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
