An eventful morning took place today for the NZD. Investors woke to find the AUD almost one cent stronger than the night before. How this unfolded this morning was that the Governor of the Reserve Bank of New Zealand, Graeme Wheeler, raised the NZ Interest Rate as expected. The decision to raise the rate seemed to already be “baked into the cake” as investors made no positional changes in the NZD pairings.
However, what happened next came to a surprise to all. Wheeler said in his announcement this morning that the NZD at current levels is unjustified and unsustainable. Further to this comment he continued to say that the Kiwi dollar still is yet readjust to declining commodity prices. Lastly, Wheeler said that the economy is still adjusting to the recent monetary policy tightening and that the NZD will move to a more neutral level. So it seems that the interest rate hike is off the table, for now.
Wheeler’s comment regarding the unjustified currency levels provides some mixed messages to investors. Currently the New Zealand economy is experiencing strong GDP growth, fantastic Trade Balance Figures, great employment data and an increasing Interest Rate. It seems that the current levels are indeed justified. This justification is magnified when comparing the New Zealand economy with the Australian economy, given that the AUS economy is arguably underperforming currently in the aforementioned areas.
The current levels of the AUD/NZD are on 4 month highs. The next few economic data releases early next month may very well set the tone for the remainder of the year.