Later today (in the evening GMT) the
Reserve Bank of New Zealand will make its monetary policy statement and core
interest rate announcement. Upon this will depend the fate of the NZ dollar
against its major counterparts, of which the Aussie dollar is one. There has
long been competition between these two nations, and it has not always been
confined to the rugby pitch. At the end of March of this year, our Kiwi friends
watched with glee as their currency approached parity with the Aussie – but
then promptly bounced off it (see chart above).
We have often remarked on the love
affair that the Forex market has with round numbers, and you cannot get a more
round number than one.
Houses
and dairy products keep Graeme Wheeler focussed
Whether or not the New Zealand unit eventually
achieves a higher value than its Australian counterpart will depend to a
significant extent on the decision that is announced by the governor of the
RBNZ, Graeme Wheeler, later today. Market commentators are evenly balanced
about whether he will or will not reduce interest rates. On the one hand he is
faced with the reality that the much vaunted macro-prudential policies (which
placed restrictions on mortgages) that were put in place to counter the
potential for a residential property bubble have not worked, and any reduction
in rates will only make a bad situation worse in this regard, while on the other
hand he must cope with softening economic conditions on the back of collapsing
prices for milk products, the most important export for NZ, and falling
inflation, both of which call for interest rate reductions.
The only apparent bright spot on the
horizon is the recent upsurge in oil prices, which can be expected to harden
inflation expectations. This, however, may be too little and too late to assist
him and his colleagues on this occasion.
No comments:
Post a Comment