Kiwi Dollar Declines On Deeper Rate Cut By RBNZ

Kiwi Dollar Declines On Deeper Rate Cut By RBNZ
August 8, 2019


The New Zealand dollar fell against the greenback yesterday after its central bank slashed the benchmark interest rate by 50 basis points to boost inflationary pressure and spur economic growth. The Kiwi dollar’s decline was also fueled by the fall in dairy prices in the latest auction conducted in New Zealand. In the past 24 hours, the NZD/USD pair has fallen from a high of 0.6577 to a low of 0.6377.

In the fortnightly global dairy auction conducted on Tuesday, dairy prices fell sharply due to an increase in supply and offsetting the previous increase. The GDT Price Index dropped 2.6%, reversing the 2.7% gains recorded in the previous auction. The average selling price of daily products was $3,253 per. The price of whole milk powder declined 1.7%. The volume of product sold rose sharply as dairy produce of the world’s largest dairy exporter, New Zealand, increased considerably. Ultimately, the increase in production weighed on dairy prices.

Analysts have cautioned that the trade war between the US and China would possibly weigh on the Chinese yuan, thereby increasing the likely negative impact on dairy prices for the rest of 2019.

Commenting on China’s influence on prices, Anne Boniface, senior economist at Westpac Bank, said: “We have warned that Chinese demand is a key swing factor in the outlook for dairy prices over the coming year….recent developments suggest the outlook for Chinese consumer demand and global growth has deteriorated.”

New Zealand’s Fonterra Co-operative Group Ltd., runs the GDT (Global Dairy Trade) auction, but functions independently from the New Zealand milk co-operative, which is owned by nearly 10,500 farmers and controls almost one-third of global dairy trade. The outcome of the auction had a negative impact on the Kiwi dollar as the dairy sector generates over 7% of the nation’s GDP.

The Kiwi dollar sell-off intensified after the Reserve Bank of New Zealand (RBNZ) slashed the official cash rate by 50 basis points to accelerate economic growth and increase inflation. Adrian Orr, head of the Monetary Policy Committee (MPC) of the RBNZ, announced the decision to cut the benchmark rate to 1%. Economists had anticipated only a 25 basis point cut in the interest rate. In May 2019, the central bank announced 25 basis point cut, the first one in over two years. Policymakers stated that jobs and inflation would possibly ease in comparison to the central bank’s targets in the lack of further monetary stimulus.

In its policy statement, the central bank justified its actions: “Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level.”

Dominick Stephens, Chief Economist at Westpac, anticipates another 25-basis point rate cut in November policy meeting. The forecast is based on the MPC statement indicating that growth headwinds are increasing. Additionally, global uncertainty is also expected to harm economic growth. The bank expects a low-interest rate and increases in government spending to accelerate growth in 2020.

Technically, the NZD/USD pair has broken below its 50-day moving average. Furthermore, the momentum indicator is making new lows. As a result, we can anticipate the currency pair to move down in the short-term.

NZD - technical analysis - 8th Aug 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins

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