The NZD Falling on Negative Rate Talk
Rowan Crosby • 1 min read
The NZD/USD is weak in Asian trade as speculation grows that interest rates could head into the negative.
A story from Reuters suggested that the RBNZ are looking to be aggressive with monetary policy, rather than wait and see. From Reuters:
“A Reserve Bank of New Zealand official told a media briefing on the bank’s policy tools that it was “actively working” on negative interest rates and a funding-for-lending programme.”
Clearly this should weigh on the NZD/USD and we are already seeing price back trading at 0.6550.
The data out today showed a slight tick higher in confidence, but nothing really to offset further rate cuts.
It was also mentioned that the RBNZ, didn’t see inflation getting back to 3% in the next three years, so it appears they stand ready to pull out all the stops.
We did hear talk about the very same thing in Australia in the last few weeks, and the RBA did say that more easing is an option.
Like the Aussie, the NZD/USD will likely weaken but could find support. 0.6500 is the obvious level for that to happen.
In some ways, the RBNZ could be trying the same trick as the RBA and trying to weaken the currency. That in itself is quite beneficial to the overall economy.
It is interesting that even though New Zealand effectively eradicated COVID early on, the impacts of closed borders will have a huge negative impact on the economy. Much of the economy is based around tourism which would be hurting. There has been talk of opening up a travel bubble between Australia and New Zealand, but that still seems some time off.
For the time being, I expect the NZD/USD to fall and maybe even tag 0.6500.