New Zealand Dollar Falls After RBNZ Head Says "Further Depreciation" Needed for Economic Growth to Continue

The Reserve Bank of New Zealand (RBNZ) refused to raise interest rates for the second time this year on Wednesday, citing “on-going surplus capacity in the global economy and extensive geo-political uncertainty.”

In today’s statement, RBNZ Governor Graeme Wheeler said monetary policy across the globe will remain accommodating, with the exception of the United States, where interest rates have begun to rise.

Governor Wheeler also mentioned the poor Q4 GDP figure for 2016, which came in at 0.4 percent, but he dismissed this print as a temporary occurrence, stating that the New Zealand economy is on solid footing with “strong population growth, and high levels of household spending and construction activity.”

More notably, the governor mentioned the falling New Zealand dollar, saying it needed to drop even further for the economy to “achieve more balanced growth.”

Wheeler’s call for a weaker NZD is consistent with RBNZ’s statement in February, in which the central bank said a low exchange rate is needed for the economy to continue growing.

The NZD/USD exchange rate was trending higher before RBNZ’s interest rate decision and statement - trading as high as 0.79732 on the day. However, the NZD began to lose ground against the USD after Governor Wheeler’s bearish comments:

It remains to be seen if Wheeler's comments will have any sustained, lasting negative impact on the NZD exchange rate, but RBNZ's calls for a weaker currency on February 8, 2017, caused the New Zealand dollar to depreciate by 6% over a 30-day period.

NZD flag image by Free Stock