RBNZ changes : how will the NZD react?

Some changes are coming in the Reserve Bank of New Zealand. Tomorrow a new Governor, Adrian Orr, will take the office. However, today he has already signed a new Policy Targets Agreement (PTA).

The new PTA differs from the previous ones with one important point. The bank will slightly shift its focus. The RBNZ will focus not only on price stability but also on full employment.

However, the CPI target remained unchanged in the range of 1-3% with a focus on the mid-point of 2% that is anticipated to be reached by 2021.

As the central bank is satisfied with the New Zealand economy, it seems that it plans to keep the interest rate on hold until 2019. So it will keep the kiwi under the pressure in the long-term.

How did the New Zealand dollar react?

Despite a disappointing forecast on the future rate hike, the New Zealand dollar met the announcement positively. The NZD/USD pair climbed to 0.7295 from the yesterday’s close price of 0.7231. The AUD/NZD rate fell further, reaching the lowest price since July 2017. GBP/NZD fell as well.  

Although the kiwi was not affected by the PTA announcement now, analysts of ANZ Research see difficulties for the New Zealand currency in the future. Although commodity prices are supporting the currency now, possible interest rate differentials with the US (that is anticipated to raise an interest rate at least 3 times this year) and decreasing global liquidity may cause a weakness of the kiwi. Moreover, any risk aversions will lead to NZD depreciation.

ANZ Research forecasts the plunge of the NZD/USD pair to 0.67. GBP/NZD is anticipated to rise to 2.12. All predictions are supposed to come to fruition until the end of 2018.

Adrian Orr, a new Governor of the RBNZ