NZD News: Kiwi dollar under pressure in lead up to RBNZ interest rate decision.

It’s been a long week for the Kiwi dollar, and we’re not referring to the fact that it was the first week without a public holiday in a while. After a pretty rough trot last week, the Kiwi dollar seemed to slowly dust off its trousers before taking another blow courtesy of data out of the US. With this in mind, as we head into the weekend one NZD will buy you:

0.6503 US dollars

71.4557 Japanese yen

0.5721 euros

0.4903 Great British pound

0.865 Canadian dollars

0.9236 Australian dollars

0.8679 Singapore dollars

 

 

Let’s take a look at what impacted the Kiwi dollar this week, and what we should expect for the week to come. 

 

Yesterday the US Federal Reserve Bank (Fed) kept interest rates on hold at the range of 2.25 - 2.5%. This decision was accompanied by a statement saying that the “labour market remains strong and that economic activity rose at a solid rate.”

 

Their choice to keep rates on hold comes despite pressure from Wall Street and the White House to ease monetary policy, or at least communicate an easing bias. In other words, they wanted the Fed to either lower interest rates or at least hint towards cuts in the future. 

 

President Trump tweeted about this on Tuesday, urging the Fed to slash interest rates by a full percentage point as the economy would go “up like a rocket”. Unwavered by Trump’s calls, Fed Chair Jerome Powell said that they “don’t see a strong case for moving in either direction”. 

 

Off the back of this decision, markets have shifted their stance on future interest rate cuts this year. Last week there was a 100% probability of a rate cut in 2019, this week the chance has gone down to 65%. In saying that, nothing is ever certain and currency markets are about as predictable as the weather. 

 

All of this culminated in downward pressure on the already weak Kiwi dollar. An interest rate cut in the US generally puts upward pressure on the value of the NZD as it becomes a more viable option for investors seeking a higher return. Keeping rates on hold or increasing interest rates has the opposite effect and can lead to a decline in the value of the NZD which is not great for Kiwi travellers. 

 

Later today will see the release of US non-farm payroll data for April. This data accounts for employment in goods, construction and manufacturing companies, excluding (as the name would suggest) farm workers, private household employees and non-profit organisation employees. 

 

This release could have an impact on the value of the Kiwi dollar, especially if it is better than markets expect. As much as we want people to be employed in the States, if the report contains a better result than markets expect, it could put even more downward pressure on the poor little NZD and, in turn, Kiwi travellers exchanging their travel money. 

 

This week data on the NZ labour market was released and came in weaker than expected. Despite a lower unemployment rate, both employment growth and wage inflation were below market expectations. 

 

The market put more weight on the weaker elements of this release, hence there was a decrease in the value of the Kiwi Dollar. 

 

This data caused markets to shift their stance on the Reserve Bank of New Zealand’s (RBNZ) next interest rate move. There is a 60% chance that, during their monthly meeting next week, the RBNZ will cute Kiwi interest rates by 25%. This is up from a 40% chance last week. If not this month, rates will be cut in June. Rough. 

 

The result? Well, risk appetite (this is the appetite of investors to purchase the NZD) has declined and the Kiwi dollar is in a vulnerable state. Should the US pay-roll data be better than expected AND the RBNZ cut rates, the NZD might need a little cuddle and pep-talk, maybe even a tub of ice cream. 

 

However, should the RBNZ keep rates on hold next month, there is likely to be a sigh of relief for the NZD and travellers. 

 

Why are they cutting rates if it isn’t good for the NZD, I hear you ask? The RBNZ takes into account a lot more than just foreign currency when making their interest rate decision, and generally, the welfare of the greater New Zealand economy is of most significant concern to them. Annoying, I know; don’t they realise we need to get travel money for our upcoming European summer holidays? Help a sister out.