As widely expected by analysts in a recent poll, the Reserve Bank of New Zealand announced on Wednesday that it would raise its cash rate to 3.5%, an increase of 25 basis points. Though it came as no surprise, the announcement which accompanied the decision indicated that the RBNZ will not be considering any additional rate increases for the present time, given that the New Zealand economy seemed to be responding well to the higher rates. That announcement alone sent the Kiwi Dollar plummeting in Asian trade. Economists had previously questioned the need for additional tightening given the already strong currency, falling export prices, especially dairy which is a major New Zealand export, and restrained inflation.
The NZD/USD pair fell to a 6-week trough, losing nearly 100 pips to trade at $0.8606 from $0.8703 before recovering slightly to $0.8613. Analysts say that the language in the announcement, though open to interpretation, could in fact be a hint that the RBNZ would be willing to intervene if it was deemed necessary. The AUD/USD also dipped to $0.9443, dropping from a 3-week peak of $0.9463.
Chinese PMI Beats Expectations
Chinese PMI data couldn’t shift sentiment for the Kiwi Dollar but it did help lift the Aussie Dollar; the preliminary HSBC PMI Manufacturing reading for July came in at 52.0, above analysts’ expectations of a rise from 50.7 to 51.0. For reference, any reading above 50.0 is an indication of an expanding sector. Following the data release, the NZD/USD was trading lower at $0.8612 while the AUD/USD traded higher at $0.9461, edging closer to the recently struck 3-week high.