NZD/USD remains on negative territory following RBNZ Wheeler statement

October 31, 2013 8:21 am

New Zealand dollar preserved daily losses against its US counterpart on Thursday, following Reserve Bank of New Zealand (RBNZ) Governor Graeme Wheeler’s statement and after the central bank left its benchmark rate unchanged.

NZD/USD slid to a session low at 0.8231 during the early phase of Asian trade, after which consolidation followed at 0.8244, still losing 0.30% for the day. Support was likely to be received at October 30th low, 0.8193, while resistance was to be encountered at October 30th high, 0.8287.

At its policy meeting this month Reserve Bank of New Zealand decided to maintain the base interest rate at the current record low level of 2.50% in consonance with expectations.

Following this decision, bank’s Governor Graeme Wheeler took a statement on policy. “Sustained strength in the exchange rate that leads to lower inflationary pressure would provide the bank with greater flexibility as to the timing and magnitude of future increases in the OCR”, he said. However, the kiwi dollar fell against the greenback, as market players perceived this announcement as a signal that the possible raise in borrowing costs might be more distant than initially expected. New Zealand, among the developed countries worldwide, was expected to be the first to consider a rate hike, but it seems this would not likely occur until Q1 or Q2 next year. “The extent and timing of the rise in the policy rate will depend largely on the degree to which momentum in the housing market and construction sector spills over into broader demand and inflation pressures”, according to the statement.

At the same time, on Wednesday Moody’s Investors Service warned that New Zealand might be stripped of its top credit rating. Moody’s is the only ratings agency to still rate the nation AAA, as Standard & Poor’s and Fitch Ratings reduced their local-currency rankings by one level on September 29th 2011. This news caused the kiwi to reach its lowest point in four weeks against the US dollar.

According to a survey of over 1 500 companies in New Zealand, the index, gauging confidence among business entities during the upcoming twelve months, slowed down to a reading of 53.2 in October, as in September it came in at 54.1.

Meanwhile, the Federal Reserve Bank decided to maintain the current pace of its asset purchases at its policy meeting yesterday, as widely anticipated, because more evidence of an improving economic activity was to be obtained. Fed Chairman Ben Bernanke continued to press with the unprecedented accommodative policy into the final months of his mandate, as he strives to safeguard economic expansion achieved in four years from the impact of October’s partial government shutdown. According to Bloomberg, the 16-day shutdown resulted in the furloughs of as many as 800 000 federal employees and also put off the release of key economic reports, which are of significant importance to Fed’s evaluation of economy and, thus, bank’s monetary policy.

“Taking into account the extent of federal fiscal retrenchment over the past year, the committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy,” the Federal Open Market Committee said.

The central bank left without change its statement that it will probably maintain the benchmark interest rate close to zero at least as long as the rate of unemployment in the country is above 6.5% and as the inflation outlook is not exceeding 2.5%. Federal Reserve also repeated that inflation rate has been below bank’s longer-term objective, but on the other hand, longer-term inflationary expectations have remained stable. According to a report released on Wednesday, the consumer price index (CPI) in the United States demonstrated a 0.2% advance in September compared to a month ago, meeting preliminary estimates, after the 0.1% gain in August. Additionally, core consumer price index, which excludes volatile components such as prices of food and energy, climbed 0.1% in September on a monthly basis, retaining the rate of increase showed in the preceding month.

Last but not least, Fed’s monthly purchases will remain divided between 40 billion USD of mortgage bonds and 45 billion USD in Treasury securities.

Elsewhere, the kiwi dollar was slightly higher against the euro, with EUR/NZD cross dipping 0.07% on a daily basis to trade at 1.6613 at 7:14 GMT. AUD/NZD pair was advancing 0.32% to trade at 1.1514 at 7:15 GMT.

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