The New Zealand dollar surged to a one-year high Thursday after the Reserve Bank of New Zealand defied expectations for an interest rate cut and left the Official Cash Rate unchanged at 2.25 percent.
The currency was up 1.5 percent at $0.7126 NZD after climbing as far as $0.7139 from around $0.7020 before the policy decision, reaching a high not seen since June 2015 after the RBNZ held rates steady.
At a news conference after the meeting, Reserve Bank of New Zealand governor Graeme Wheeler said that global financial market volatility had quieted down and the outlook for global growth appeared to be stable after being revised down successively over several recent quarters. He pointed to a modest recovery in commodity prices in recent months but warned that the global economy continues to be weak despite monetary incentives and there are still significant downside risks.
Dairy Sector Exports Below Break-Even Levels
Wheeler also said that strong net immigration, construction, tourism and accommodative monetary policy continue to support domestic activity and that the dairy sector remains a moderating influence with export prices below break-even levels for most farmers. He indicated that the bank would not hesitate to adjust interest rates if needed.
According to Angus Nicholson, market analyst at IG in Melbourne, "If U.S. data continues to disappoint, the kiwi could continue to push higher in the near-term. However, risks to the downside are clearly the potential for another RBNZ rate cut in August or a run of better than expected U.S. data."
The dollar index inched 0.1 percent lower to 93.511 not far from a five-week low of 94.425 hit on Wednesday amid fading expectations the U.S. Federal Reserve would raise interest rates as early as its meeting next week.