New Zealand Dollar Sells Off 1% After RBNZ Says NZD/USD Exchange Rate Too High

The NZD closed the day with a loss of 0.52% after the Reserve Bank of New Zealand (RBNZ) decided to keep interest rates unchanged at 1.75 percent.

In a statement, the RBNZ said the economic outlook for New Zealand has improved as global interest rates and commodity prices have started to rise. However, the central bank said NZD’s strength may be problematic for growth prospects:
“The exchange rate remains higher than is sustainable for balanced growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed.”
While the central bank struck a positive tone on current economic growth, housing prices and inflation targets, the RBNZ also stated that the global economy remains on shaky ground, with many lingering uncertainties. Therefore, the RBNZ concluded that an accommodative monetary policy will remain for a “considerable period.”

RBNZ’s hawkish comments on the New Zealand dollar caused the NZD/USD currency pair to drop considerably over the last few hours.

At press time, the New Zealand dollar is trading around 0.7225 to the greenback, lower by 1.0 when measured against the exchange rate (0.7289) prior to the RBNZ statement.

NZD banknotes photo by Mark Lincoln

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