RBNZ Predicts Latest Rate Cut Will Be Sufficient to Control Inflation
The Reserve Bank of New Zealand (RBNZ) has delivered the expected -0.25% rate cut in an attempt to combat disruptions in the global diary market and keep inflation in the middle of its target range. Comments made following the decision have seen the New Zealand Dollar (NZD) surge up, as RBNZ Governor Graeme Wheeler signalled that he believes the rate cut – the fourth in a year – will be sufficient.
The Euro to New Zealand Dollar (EUR/NZD) exchange rate has surged against the majority of currencies, with consistent Gross Domestic Product figures helping to justify the European Central Bank’s (ECB) minimal change to monetary stimulus. The common currency has also been strengthened by New Zealand Dollar weakness, as traders pause ahead of an interest rate decision by the Reserve Bank of New Zealand (RBNZ).
EUR/NZD Exchange Rate Forecast: Steady GDP Helps Euro Extend Strong Lead
After last week’s surprising ECB decision sent waves through the markets, the Euro is once again advancing after a weekend slump. Year-on-Year (YoY) Gross Domestic Product figures, released yesterday, show that the Eurozone economy has continued to grow at a steady 1.6%. Both government and household spending grew in the previous quarter and GDP was also bolstered by a rise in stocks ahead of anticipated action by the ECB. Recovery was held back by a flat level of investment and a quicker rise in imports than exports.
As a result the Euro is experiencing a bullish charge, advancing 0.4% against the Canadian Dollar (CAD) and the US Dollar (USD) and 0.9% against the Australian Dollar (AUD) and the New Zealand Dollar (NZD).
The Euro to New Zealand Dollar (EUR/NZD) exchange rate is currently trending in the region of 1.6572.
NZD/EUR Exchange Rate Slumps Ahead of RBNZ Interest Rate Decision
The RBNZ is due to make a decision on interest rates when it meets during today’s oceanic session. It is widely expected that the continuing turbulence in the global dairy market will force a -0.25% cut to the benchmark interest rate, taking it down to 2.50%.
The ‘Kiwi’ has also been harmed by the downgrading in credit ratings of the Fonterra dairy co-operative – a group which combines dairy marketing, the New Zealand Dairy Board (NZDB) and milk collection and processing. According to ratings agency Fitch, the co-operative should have reduced advance-rate milk payments to its farmer shareholders when dairy prices dropped: failing to do so cut subsequent payments by NZD$900 million. Another move which has caused concern was Fonterra’s decision in August to offer interest-free loans to farmer shareholders in a bid to help ease cash flow problems caused by the drop in global dairy prices. The opportunity was taken up by 76% of members, resulting in costs of NZD$390 million.
As a result, Fonterra has been downgraded from A to AA- by Fitch, which comes not long after Standard & Poor’s cut their assessment of the co-operative from A to A-.
The New Zealand Dollar to Euro exchange rate is currently down -0.7% and trending between 0.6040 and 0.6097.
EUR/NZD Exchange Rate Forecast: RBNZ Interest Rate Cut Likely
The Reserve Bank of New Zealand meets during today’s South Pacific session. There is little Eurozone data due until the German Consumer Price Index on Friday, however the market is still experiencing strong corrections following the disappointing ECB decision. An RBNZ rate cut has been partially priced into the exchange rate, although the Euro’s bullish run could continue to push the ‘Kiwi’ down.
The EUR/NZD exchange rate is currently trading between 1.6353 and 1.6576.