NZD/USD holds positive ground above 0.6000 as RBNZ leaves interest rate unchanged at 3.25%

NZD/USD trades in positive territory near 0.6000 in Wednesday’s Asian session, adding 0.25% on the day.
The RBNZ held its OCR steady at 3.25% at its July meeting.
The release of the FOMC Minutes will be the highlight later on Wednesday.

Lallalit Srijandorn FXStreet

The NZD/USD pair gains ground to around 0.6000 during the Asian trading hours on Wednesday. The New Zealand Dollar (NZD) strengthens against the Greenback after the Reserve Bank of New Zealand (RBNZ) interest rate decision. The attention will shift to the release of the FOMC Minutes later on Wednesday.

As widely expected, the RBNZ decided to leave the Official Cash Rate (OCR) unchanged at 3.25% after concluding the June policy meeting on Wednesday. The New Zealand central bank stood pat on the policy rate after six consecutive cuts. The Kiwi attracts some buyers in an immediate reaction to the RBNZ interest rate decision.

According to the minutes of the RBNZ interest rate meeting, the case for keeping the interest rate on hold at the July meeting highlighted the elevated level of uncertainty and the benefits of waiting until August in light of near-term inflation risks. The committee further stated that risks to the global outlook remain elevated.

Data released by the National Bureau of Statistics of China on Wednesday showed that the country’s Consumer Price Index (CPI) rose at an annual pace of 0.1% in June, compared to a decline of 0.1% in May. The market consensus was for 0% in the reported period.

Meanwhile, the Producer Price Index (PPI) fell 3.6% YoY in June, following a 3.3% decline in May. The data came in below the market consensus of 3.2%. The concerns about persistent deflationary pressure in China driven by sluggish domestic demand and tariff threats could weigh on the China-proxy Kiwi as

The FOMC Minutes will take center stage on Wednesday, as they might offer some hints about how Fed officials view the US economy and give insight into the interest rate path. Several Fed policymakers are also set to speak later this week. Any dovish remarks from Fed officials could undermine the Greenback and create a tailwind for the pair in the near term.

RBNZ FAQs

What is the Reserve Bank of New Zealand?

The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.

How does the Reserve Bank of New Zealand’s monetary policy influence the New Zealand Dollar?

The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.

Why does the Reserve Bank of New Zealand care about employment?

Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.

What is Quantitative Easing (QE)?

In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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