NZD/USD extends rally following RBNZ financial stability report

NZD/USD extends rally following RBNZ financial stability report, Wednesday, November 12: The NZD/USD has extended its overnight gains following the Reserve Bank of New Zealand’s (RBNZ) financial stability report. Sentiment in the kiwi improved after the central bank reiterated its resolve to raise interest rates should the need arise.

The pair had gained 1.37 percent to $0.7844 as of 06:31 GMT, and was trading 1.2 percent below its simple moving average of $0.7940. It gained over 1.5 percent in volatile trading during the previous session.
According to the RBNZ’s semiannual financial stability report, released at 20:00 GMT yesterday, officials plan to retain regulations on low-equity home loans in order to keep house price inflation in check, particularly in light of the nations’ strong inbound migration.

According to the report the New Zealand dollar “remains elevated” but could decline further if the US economy strengthens or China’s expansion slow. Without commenting directly on monetary policy, central bank officials said that “further increases in short-term interest rates may be required in coming years”.
Speaking in front of Parliament’s finance and expenditure select committee, governor Graeme Wheeler said that monetary policy was still “stimulatory” and that a more neutral level for the 90-day bank bill rate was around 4.5 percent.

“He reminded people that we’re still in a tightening cycle when the market was trying to price it all out,” said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland.
According to Wheeler the New Zealand dollar still remained unjustifiably and unsustainably high, despite falling from its July peak, and that any further decline would be dependent on whether the US dollar was heading for a significant strengthening as traders adjust for higher interest rates in the world’s largest economy.

Wheeler, who intervened in currency markets in August to weaken the kiwi, was quoted as saying:
“We still believe the exchange rate is unjustified and unsustainable”. Recent declines haven’t matched weaker export prices and the RBNZ “still thinks the exchange rate’s got further to go”.
“Everything is moving in the right direction for easing the restrictions but the criteria aren’t met at present,” said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland, as quoted by Bloomberg. “A clear downturn in migration would be needed to give a high degree of confidence the housing market won’t rebound.”
After raising the benchmark interest rate four times between March and July this year, the central bank has paused since then amid benign inflation.

By Georgi Milenkov
Georgi likes all things shiny; gold, silver, platinum an pirate treasure. Fascinated by the commodities market, Georgi uses his trading experience to report on commodities prices. He now works for Hewlett Packard.

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