With industry experts anticipating that the worsening drought in New Zealand will deter the nation’s central bank from raising interest rates from their record low the ‘Kiwi’ fell against the majority of its currency rivals.
The New Zealand Dollar exchange rate was trading in the region of 0.7978 against the Australian Dollar as of 09:40 am
In recent weeks economic data for New Zealand has hinted at gradual, but relatively steady, economic recovery in the region, and as the signs of a pickup in growth increased so did the odds of the Reserve Bank of New Zealand raising its benchmark borrowing cost from 2.5 per cent.
However, investors have now slashed these odds as the drought afflicting the nation threatens to undermine the economic progress made thus far.
As currency strategist Mike Jones asserted: ‘The drought continues to worsen on an almost daily basis, placing downward pressure on the New Zealand Dollar. There’s no doubt that growth in the first half of this year will be weaker as a result of the drought.’
The ‘Kiwi’ slid by 0.6 per cent against the Japanese Yen and slumped to a six-week low against its Australian counterpart during local trade. It also posted modest declines against the US Dollar.
Speculation that RBNZ Governor Graeme Wheeler will make an additional reference to the ‘overvalued New Zealand Dollar’ in today’s announcement also wore on the currency.
Meanwhile, the Australian Dollar was boosted as a Westpac consumer confidence index achieved its strongest level for over three years. A separate government report showed that after dropping by 2.1 per cent in December a gauge of home loans slid by 1.5 per cent in January.
With the likelihood of the Reserve Bank of Australia keeping its overnight cash rate target at 3 per cent when it meets next month greatly increased the ‘Aussie’ broadly strengthened.
As Mike Jones comments: ‘The economy in Australia has stabilized. The process of paring bets for RBA cuts is supportive of the Aussie. We changed our interest-rate call to two more interest-rate cuts instead of three this year. The risk is that it’s even less.’
The RBNZ will announce its rate decision at 20:00 GMT.
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