Negative vs positive interest rates: NZD
|The difference between positive and negative Interest Rates is for the most part, nothing. The only change is positive interest rates will work on a negative scale instead of the positive spectrum. Computations are the same except for the negative minus sign.
Overall, negative interest rates are meaningless to FX prices and EURUSD is the prime example, now 6 years in existence. The only possible difference seen is to daily Fx ranges however central banks have this aspect fully covered so FX prices don't move and to contain prices to tiny ranges. The EUR/USD for example at the 2014 time to go negative contained 75 and 80 pip daily ranges and today, the range was cut by 1/2.
The NZD 5 year Yield went negative -0.02 today from positive 0.01 yesterday. For NZDUSD, the negative rate expanded the overall range 94 Vs 144 pips to be exact but only for the interest Maturity at -0.02. Overall, nothing changed for NZD prices as other maturities compensates for the 1 negative maturity. If all RBNZ rates go negative then nothing changes to NZD.
No difference to interest rate traders except to calculate trades from a negative perspective as ranges remain the same from negative to positive rates.
Used correctly by central banks, negative interest rates is a smarter move than positive rates as positive rate scales conceivably can shoot to infinity while Negative rates contains a known bottom at minus 0.0 and the top side is located at + 0.0, or +0.00 to -0.00. negative rates allow for smaller trade ranges.
For Monetary Policy, negative rates says much more as central banks since 2008 refuse to rescind stimulus and allow GDP and positive interest rates to skyrocket to allow populations and economies to experience economic prosperity.
Negative interest rates informs how much damage was caused over 12 years. Never forget the overall formula as interest rates and money supplies share an adverse relationship and done by central bank design. The more money is added to the system then the more interest rates drop. GDP under stimulus scenarios doesn't contain any chances to rise to its natural level. Stimulus ensures interest rates and GDP remain lower for longer.
However Monetary Policy under negative interest rates without stimulus is actually a panacea to positive economics as interest and GDP ranges work inside a vast different corridor to overall price systems.
Further reads are Silvio Gesell "The Natural Economic Order" and Knut Wicksell "Interest and Prices". Anything written by Knut Wicksell is a must read.
NZD/USD now approaches its vital 5 year average at 0.6809. A huge break and commentary to overall market prices as the bottom pair among all 28 informs all other currency pairs will follow NZD's break. EUR/USD broke at 1.1200's and GBP/USD is yet to follow at its 5 year average at 1.3196.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.