The Euro to New Zealand Dollar (EUR/NZD) exchange rate fell in the early part of Wednesday’s European session after the latest Fronterra dairy auction showed milk prices rocketed by 19.2%.
Industry expert Martin Rudings commented: ‘That milk powder auction was pretty stellar. The ‘Kiwi’ popped after the auction.’
Earlier… The Euro to New Zealand Dollar (EUR/NZD) exchange rate experienced +1.31% market movement on Tuesday as a result of the Reserve Bank of Australia (RBA) cutting interest rates by 25 basis points.
The ‘Kiwi’ declined in the Australian Dollar’s footsteps on the news. Central banks the world over have been undertaking drastic action as a global slowdown looms, and some investors had bet that the RBA would also adjust policy.
It started with the Swiss National Bank (SNB) several weeks ago when the central bank announced it would be relinquishing its tie between the Euro and the Swiss Franc (EUR/CHF) exchange rate.
The next piece of news was the European Central Bank’s (ECB) pledge to undertake a period of quantitative easing (QE) to try and stimulate growth.
Then the Bank of Canada (BOC) took markets completely by surprise and reduced its interest rate from 1.0% to 0.75%.
In addition, the Bank of England (BoE) saw its Monetary Policy Committee (MPC) hawks turn into doves and cast a unanimous vote for keeping interest rates on hold.
However, after the BOC slashed its benchmark interest rate, which has been stable for the past four years, investors and economists began to speculate that the Reserve Bank of New Zealand (RBNZ) and Reserve Bank of Australia (RBA) would be next.
The Reserve Bank of New Zealand changed its rhetoric slightly; instead of suggesting rate hikes would recommence, Governor Graeme Wheeler stated that the interest rate would hopefully remain stable for some time and any shift ‘either up or down’ would be an action determined by data.
Reserve Bank of Australia (RBA) Rate Cut Drags New Zealand Dollar (NZD) Exchange Rate Down
Which brings us back to the RBA; in December the central bank claimed it hadn’t considered cutting rates, but evidently, that’s no longer the case.
The central bank made the decision to cut its official cash rate to 2.25% amid fears of an Australian slowdown and recession.
The RBA stated: ‘For the past year and a half, the cash rate has been stable, as the Board has taken time to assess the effects of the substantial easing in policy that had already been put in place and monitored developments in Australia and abroad.’
‘At today’s meeting, taking into account the flow of recent information and updated forecasts, the Board judged that, on balance, a further reduction in the cash rate was appropriate.’
So, why has the ‘Kiwi’ declined so significantly? Well, the RBA cash rate cut has now given leeway for a rate cut in New Zealand.
Westpac strategist Imre Speizer commented ‘There’s now a case for it (rate cut). RBNZ Governor Graeme Wheeler is due to speak tomorrow to the Canterbury Employers Chamber of Commerce in Christchurch and could use the speech to reflect on monetary policy and the response to last week’s statement.’
Euro to New Zealand Dollar (EUR/NZD) Exchange Rate Forecast
The Euro to New Zealand Dollar (EUR/NZD) exchange rate could fluctuate in Tuesday’s session on the release of the Eurozone Producer Price Index. The figure is forecast to contract by -0.7% in December which could see Euro losses.
However, the Euro has remained upbeat against the ‘Kiwi’ despite ECB official Ewald Nowotny commenting that inflation below 0.0% could remain for some time.
The big data on Tuesday will be New Zealand’s Employment Change and Unemployment Rate ecostats which are forecast to print favourably. Positive figures could allow the New Zealand Dollar to Euro (NZD/EUR) exchange rate to reclaim some losses.
The Euro to New Zealand Dollar (EUR/NZD) exchange rate is residing in the region of 1.5763. The New Zealand Dollar to Euro (NZD/EUR) exchange rate is trading at 0.6347.