NZDUSD Rallied After RBNZ Kept Rates Unchanged, As Expected
• The NZD took centre stage on Thursday, surging to a one-year high after the Reserve Bank of New Zealand kept interest rates unchanged, surprising some investors who had been betting on a rate cut. The RBNZ decision was in line with our expectations.
• The Reserve Bank of New Zealand indicated it could cut rates again due to low inflation. However, soaring home prices have put the central bank in a tricky situation after it slashed rates five times since June last year - the last 25-basis-point cut coming in March. "House price inflation in Auckland and other regions is adding to financial stability concerns," said RBNZ governor Graeme Wheeler in a statement accompanying the decision.
• The RBNZ said it would be meeting in the next few weeks with Treasury officials to consider macro-prudential tools to curb the rise in home prices, including possible income related restrictions on mortgage lending. New Zealand's housing prices, spurred by low interest rates, high levels of immigration and supply shortages, are the second fastest-growing in the world after Qatar, according to the International Monetary Fund.
• The market is now pricing in a 40% chance of a rate cut at the August 11 policy review, from 60% before Thursday's decision. Wheeler said that although one more cut was built into the bank's interest rate projections, factors such as economic performance, the currency and inflation expectations will influence its decision. He added: “You could end up in a situation where there is in fact no cut or there could be more cuts.”
• We took profit on the NZDUSD long in the speculative part of our portfolio. Our long-term view remains bullish.
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• The Reserve Bank of New Zealand indicated it could cut rates again due to low inflation. However, soaring home prices have put the central bank in a tricky situation after it slashed rates five times since June last year - the last 25-basis-point cut coming in March. "House price inflation in Auckland and other regions is adding to financial stability concerns," said RBNZ governor Graeme Wheeler in a statement accompanying the decision.
• The RBNZ said it would be meeting in the next few weeks with Treasury officials to consider macro-prudential tools to curb the rise in home prices, including possible income related restrictions on mortgage lending. New Zealand's housing prices, spurred by low interest rates, high levels of immigration and supply shortages, are the second fastest-growing in the world after Qatar, according to the International Monetary Fund.
• The market is now pricing in a 40% chance of a rate cut at the August 11 policy review, from 60% before Thursday's decision. Wheeler said that although one more cut was built into the bank's interest rate projections, factors such as economic performance, the currency and inflation expectations will influence its decision. He added: “You could end up in a situation where there is in fact no cut or there could be more cuts.”
• We took profit on the NZDUSD long in the speculative part of our portfolio. Our long-term view remains bullish.
Sign up to our newsletter growthaces.com and follow our trading signals.