At 22:00 GMT the Reserve Bank of New Zealand will issue its latest rate announcement. Although economists expect that the central bank will hold the benchmark rate at 2.5 per cent, the announcement accompanying the decision is likely to cause ‘Kiwi’ movement given the effect of comments issued by the RBNZ Governor last month.
The New Zealand Dollar exchange rate was trading in the region of 0.8374 against the US Dollar as of 10:10 am
In March Governor Graeme Wheeler asserted that the New Zealand Dollar is currently overvalued, and that if it continues trading at its present rate the nation’s economy will suffer. Wheeler also intimated that the key rate will probably remain at 2.5 per cent until the end of 2013.
Some economists are anticipating that the central bank’s upcoming remarks may be issued with the intention of knocking the New Zealand Dollar.
As currency strategist Sean Callow noted, the RBNZ could ‘invoke language associated with exchange rate intervention, such as labelling the Kiwi ‘unjustified’ and ‘exceptional’.
Conversely, another industry expert asserted: ‘Ultimately New Zealand policy makers know they have to focus on domestic issues rather than the exchange rate which is historically rather volatile.’
During local trade the New Zealand Dollar fell to 83.86 US cents and declined against the majority of its other most traded currency peers.
The ‘Kiwi’s slump occurred largely in reaction to the publication of another piece of disappointing data for China, this time weaker-than-forecast manufacturing PMI.
The Chinese manufacturing index dropped from 51.6 to 50.5 in April, edging ever closer to contraction. The result knocked China’s economic outlook, and consequently had a negative effect on the currencies of its main trading partners, Australia and New Zealand.
If the RBNZ makes reference to the adverse repercussions of ‘Kiwi’ strength during its announcement the New Zealand Dollar could post further declines.
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