RBNZ, Interest Rate Decision, NZD / USD – Talking Points:
- NZD immersed itself in the moderate guidance of the Reserve Bank of New Zealand
- RBNZ remains “prepared to provide additional stimulation as needed”
- Trade tensions between the United States and China may continue to dictate the NZD / USD exchange rate
The New Zealand dollar fell 0.8% after the RBNZ said it remains “prepared to provide additional stimulus as needed.” Keeping the official cash rate (OCR) stable at 0.25%, the committee maintained “the balance of economic risks continues to decline.”
As the central bank “continues to prepare for the use of additional monetary policy tools,” uncertainty remains as to “whether the monetary stimulus delivered to date is sufficient to fulfill its mandate.”
Highlighting the “increased pressure on export earnings” due to the recent “appreciation of the New Zealand exchange rate” suggests that the RBNZ may be considering future monetary intervention, combined with an expansion of the large asset purchase program $ 60 billion scale (LSAP), to Continue supporting economic recovery.
Looking ahead, the central bank “will describe the prospects for the LSAP program” and “our readiness to implement alternative monetary policy tools in our August statement,” with the implementation of the yield curve and interest rate control. negative interest rates that remain viable possibilities.
NZD / USD chart created using TradingView
Tourism to drag in the economic recovery
The Organization for Economic Cooperation and Development (OECD) praised New Zealand’s “swift and decisive response” to COVID-19, in its semi-annual economic outlook report released in June, as the island nation “successfully contained the outbreak virus, saving lives and allows the economy to reopen faster “.
However, these “stringent containment measures” came at a cost to the local economy as gross domestic product (GDP) is projected to drop by almost 9% in 2020 and will only return to the pre-crisis level for late 2021. ”
Source – Organization for Economic Co-operation and Development (OECD)
Although New Zealand’s success in suppressing the virus resulted in the reduction of all coronavirus restrictions on June 8, the Prime Minister Jacinda Ardern He urged “now is not the right time” to be “more liberal on the borders,” after a lapse in quarantine protocols resulted in the resurgence of new cases.
With the tourism industry accounting for “about 10% of GDP and 20% of exports in 2019,” and the local border “likely to remain closed to foreign visitors until at least early 2021,” the headwinds to the economic recovery remain immense.
New Zealand tourist arrivals
Source – Commercial economy
Announcing a possible ‘Trans-Tasman’ travel bubble, allowing Australians and New Zealanders to travel freely between the two countries, could provide a much-needed boost to the service-based economy.
However, the recent surge in coronavirus cases in Victoria may jeopardize the implementation of this long-awaited scheme and could see some of the sting from the three-month recovery of the New Zealand dollar.
Sentiment to dictate the future of NZD
The sensitivity of the New Zealand dollar to US and Chinese trade headlines stood out yesterday as the risk-associated currency plummeted in response to comments from the White House trade adviser, Peter Navarro, suggesting that the ‘phase 1’ agreement signed in January was ‘terminated’.
Although this collapse proved to be short-lived, as Navarro emphasized that his words “had been taken out of context,” it exemplifies the influence that the relationship between the world’s two largest economies has on risk assets in general.
The focus on developing this relationship will be maintained, and further escalation is likely to fuel a decline in the trade-sensitive currency.
NZD / USD chart created using TradingView
– Written by Daniel Moss
Follow me on Twitter @DanielGMoss
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