NZD/USD: Assessing Potential Forex Trends
Recently, the governor of the Reserve Bank of New Zealand cut the benchmark rate to its lowest ever at 2.25% in March 2016. This was the fifth cut in seven consecutive OCR (Official Cash Rate) reviews.
The rate cut in March came under investigation as it was alleged that the information was leaked before the official announcement was made. The rate was decreased to a record low in a bid to eliminate the prospects of the risk of deflation in the economy. The inflation has been near zero percent for a long time. After the rate cut, Wheeler expected the inflation to finally look up because of the policy changes in addition to a weakening New Zealand dollar coupled with an increase in fuel prices.
Inflation Changes
But the inflation did not rise enough in April. As expected, the rates remained unchanged. In fact, Governor Wheeler may cut the rates again if inflation fails to pick up in the near future. Although the inflation increased by 0.4% year-on-year in the first quarter of 2016, the price level is still below the target inflation of 1-3%. RBNZ may have to indulge in Quantitative Easing if the circumstances continue. This makes carry trades in forex strategies more likely to outperform in coming months.
Wheeler said, If concerns deepen around the prospects for the global economy and its impact on New Zealand, some further policy easing may be needed over the coming year.
Add to this, the house price inflation persisting in some regions of New Zealand like Auckland and you will get a pretty accurate picture of the financial stability in the country. The housing industry in New Zealand has outperformed housing industries from all other regions in the world except Qatar.
Currency Performance
The government is taking corrective measures like an increase in the supply of houses and reducing prohibitive measures on densification to improve the situation. Despite all the concerns, New Zealand has performed well in the past couple of years. Even though the inflation has not increased, the growth has been strong, especially because of immigration into the country.
With good reason, Wheeler doesn't want a mechanistic approach to problem-solving as it would result in reduced flexibility and may cause imbalances in the financial system and aggravate the problems in struggling sectors like dairy and housing.
Recently, the governor of the Reserve Bank of New Zealand cut the benchmark rate to its lowest ever at 2.25% in March 2016. This was the fifth cut in seven consecutive OCR (Official Cash Rate) reviews.
The rate cut in March came under investigation as it was alleged that the information was leaked before the official announcement was made. The rate was decreased to a record low in a bid to eliminate the prospects of the risk of deflation in the economy. The inflation has been near zero percent for a long time. After the rate cut, Wheeler expected the inflation to finally look up because of the policy changes in addition to a weakening New Zealand dollar coupled with an increase in fuel prices.
Inflation Changes
But the inflation did not rise enough in April. As expected, the rates remained unchanged. In fact, Governor Wheeler may cut the rates again if inflation fails to pick up in the near future. Although the inflation increased by 0.4% year-on-year in the first quarter of 2016, the price level is still below the target inflation of 1-3%. RBNZ may have to indulge in Quantitative Easing if the circumstances continue. This makes carry trades in forex strategies more likely to outperform in coming months.
Wheeler said, If concerns deepen around the prospects for the global economy and its impact on New Zealand, some further policy easing may be needed over the coming year.
Add to this, the house price inflation persisting in some regions of New Zealand like Auckland and you will get a pretty accurate picture of the financial stability in the country. The housing industry in New Zealand has outperformed housing industries from all other regions in the world except Qatar.
Currency Performance
The government is taking corrective measures like an increase in the supply of houses and reducing prohibitive measures on densification to improve the situation. Despite all the concerns, New Zealand has performed well in the past couple of years. Even though the inflation has not increased, the growth has been strong, especially because of immigration into the country.
With good reason, Wheeler doesn't want a mechanistic approach to problem-solving as it would result in reduced flexibility and may cause imbalances in the financial system and aggravate the problems in struggling sectors like dairy and housing.