While economists had expected the Reserve Bank of New Zealand to increase interest rates at its April policy meeting, the central bank’s decision still boosted the ‘Kiwi’ and saw the Euro to NZD pairing decline.
The Euro advanced on several of its most traded currency counterparts yesterday following the release of surprisingly upbeat services and manufacturing PMI data for the Eurozone and Germany.
Although the common currency largely held these gains against peers like the Pound, it pared its advance against the New Zealand Dollar during South Pacific trading.
The RBNZ raised the official cash rate to 3 per cent (a quarter percentage point increase).
This second consecutive increasing of borrowing costs had been expected and priced into the market accordingly, but the New Zealand Dollar still advanced to 86.12 against the ‘Greenback’.
RBNZ Governor Graeme Wheeler stated that New Zealand’s present economic performance has made it ‘necessary to raise interest rates toward a level at which they are no longer adding to demand [further rate hikes] will depend on economic data and our continuing assessment of emerging inflationary pressure, including the extent to which the high exchange rate leads to lower inflationary pressure.’
The central bank also positively revised its growth estimate for New Zealand and now envisages expansion of 3.5 per cent in the year to March rather than the 3.3 per cent estimated last month.
However, the RBNZ did reiterate concerns regarding the strength of the local currency, calling it a ‘headwind’ for exporters. Wheeler asserted; ‘The bank does not believe the current level of the exchange rate is sustainable.’
As both the German IFO business climate and expectations reports came in above forecast levels the Euro may well recover lost ground against the New Zealand Dollar over the next few hours.
The business climate measure advanced from 110.7 to 111.2 rather than dipping to 110.4 as expected.
Meanwhile the expectations gauge, which was predicted to fall from 106.4 in March to 105.8, actually rallied to 107.3.
It wasn’t all good news for the Eurozone’s largest economy however as the IFO current assessment index climbed from 115.2 to 115.3 instead of achieving the 115.7 projected.
Before the weekend further Euro to New Zealand Dollar fluctuations are most likely to occur as a result of French jobseekers data.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,,Australian Dollar,1.4896 ,
Euro,,New Zealand Dollar,1.6062 ,