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The Reserve Bank of New Zealand kept interest rates unchanged at a record low 0.25 percent earlier this morning, and talked up the need for more policy stimulus, while talking down the ongoing economic recovery.
Financial markets had been hoping that the RBNZ may be the first central bank to come out with hawkish commentary, as the global economy starts to show signs of improvement and enhanced growth prospects.
Governor Orr and the policy board of the RBNZ decided to keep large scale asset purchases in place at NZD $100 billion, and the Funding for Lending Programme unchanged. Again, some economists thought that the central bank may start to reduce purchases at this meeting. The New Zealand dollar took a tumble on the foreign exchange market as the RBNZ announced this.
The more positive signs the market was hoping for came from the economic forecasts from the central bank. The RBNZ revised growth, inflation, and employment higher, as all metric have improved since the November meeting.
Just so the market did not get too carried away with the revised forecasts, the RBNZ also added some dovish commentary into the mix today. The RBNZ said that outlook for the New Zealand economy remains “highly uncertain”.
The RBNZ statement also noted “This ongoing uncertainty is expected to constrain business investment and household spending growth,” it said, adding that inflation and employment would likely remain below its remit targets over the medium term in the absence of prolonged monetary stimulus.
Going forward, the commodity boom is helping to drive demand for the New Zealand dollar and commodity-related currencies in general. The central bank will be acutely aware that commodity appreciation is likely to cause the New Zealand to post more gains against the US dollar, euro, and Asian currencies.
The ActivTrader Market Sentiment tool shows that traders are extremely bearish towards the New Zealand dollar currency. Traders are massively on the wrong side of the market move here.
With such an extremely large one-way sentiment skew it is extremely likely that the New Zealand dollar will continue to head higher. Traders are simply too bearish and running against the prevailing market trend.
Source by ActivTrader.
