New Zealand Dollar Rises After RBNZ Maintains Cash Rate

 | Aug 16, 2023 07:44AM ET

  • RBNZ holds cash rate at 5.5%, as expected
  • New Zealand dollar stems slide

    • The New Zealand dollar is in positive territory on Wednesday in the aftermath of the Reserve Bank of New Zealand’s decision to maintain interest rate levels. In the European session, NZD/USD is trading at 0.5965, up 0.25%. NZD/USD rose as high as 0.5993 but has pared most of these gains.

    It has been a bumpy road for the New Zealand dollar, which is coming off a six-day slide in which it declined 150 basis points. The Kiwi has the dubious honour of the worst-performing currency among the majors over the past month, sliding about 7.1%. The current downswing has been driven by weak global demand and concerns over China’s economy, which is experiencing deflation.

    h2 RBNZ holds rates but says further rate hikes remain an option/h2

    The RBNZ opted to pause for a second straight time, leaving the cash rate at 5.5%. This decision was expected, but the New Zealand dollar managed to rise about 0.66% after the decision, before surrendering much of those gains.

    The RBNZ noted that inflation, currently at 6%, is expected to fall below the upper band of the 1%-3% target by the third quarter of 2025, but that will require rates to remain restrictive “for some time.” The central bank warned that “in the near term, there is a risk that activity and inflation measures do not slow as much as expected.” The Bank also said that headline inflation and inflation expectations have been in decline, but core CPI remains too high.

    Is the RBNZ done raising rates? A second-straight pause is a promising sign, and many economists believe that rates have peaked, with rate cuts coming sometime next year. The RBNZ continues to forecast a peak at the current rate of 5.5% but said that there is an upside risk of one more hike, before cutting rates in 2025.