After much speculation, the Reserve Bank of New Zealand (RBNZ) surprised markets by cutting interest rates in New Zealand. The culmination of this and the wider global impact of the US/China trade war has not been kind to the value of the Kiwi dollar. With this in mind, one NZD will buy you:
If you’re planning on travelling soon, we recommend adding Rate Guard to your foreign currency purchase in store. It’s free, and if the rate improves within 14 days of purchase, we will refund you the difference*.
More on the RBNZ interest rate cut
On Wednesday, the RBNZ cut interest rates by 25 basis points to 1.5% and signalled there may be further cuts in the future. The cut came as a surprise to markets with most expecting rates to stay on hold at 1.75%. As a result, the Kiwi dollar fell sharply afterwards.
Despite the fall, the NZD has recovered and is sitting back where it was before the decision, for now at least.
Why did they cut interest rates, you ask? There were a few reasons for the cut, both domestic and international.
- Slowing global economy
- The US/China trade war and the slowing Chinese economy
- New Zealand employment growth is more subdued
- Inflation that is well below the RBNZ’s targets
Inflation is perhaps one of the biggest reasons. The RBNZ’s target for inflation is 2.0%. For the last decade, inflation has averaged around 1.6%. In addition to this, New Zealand’s unemployment rate rose from 4% last September, to 4.2% in March this year. The rate cut’s purpose was to support economic growth.
Still confused? Check out the below infographic that details how interest rates can affect economic growth and the value of a currency. Keep in mind that both economic growth and the value of the NZD are influenced by a multitude of other factors, and this diagram explains inflation in an environment where all other factors are held constant.
US/China trade war: it’s tariff time
This morning President Trump was heard saying “I’m here to get a spray tan and slap China with some tariffs, and I’m almost finished with my tan…” Just kidding, he probably didn’t say that, but he is about to RKO China with some hefty tariffs.
After weeks of being told that the trade talks were progressing nicely, last Friday Trump seemingly tweeted out of nowhere that he was sick of China’s delays and, as a result, was ready to increase the tariffs on US$200billion worth of Chinese exports to the USA from 10% to 25%. Despite delegates from Beijing flying to Washington for talks on Thursday and Friday this week, Trump is still pulling the trigger on the tariffs because China had “broke(sic) the deal”.
China’s Commerce Ministry spokesman fired back, disputing Trump’s words by stating that the country “is credible and honours its word”. Whatever that means. Trump also announced that he had received a “beautiful letter” from President Xi Jinping. Hopefully, this letter can spark something that finally ends the uncertainty around these negotiations and we can all move forward.
This whole situation has spelt bad news for the Kiwi dollar, which has proven very sensitive to the progress of the talks. Our strong trade ties with China mean a blow to the Chinese economy will have ripple effects on the Kiwi economy and NZD. Hence, when Trump sent out his tweet last Friday, the Kiwi dollar saw a sharp decline.
Fingers crossed we have a better outlook this time next week. In the meantime, why not sign up for the Travel Money Club and go in the running to win $500* each month? We can guarantee that winning $500 would do more for your travel money than any RBNZ decision.
This blog is provided for information only and does not take into consideration your objectives, financial situation or needs. You should consider whether the information and suggestions contained in any blog entry are appropriate for you, having regard to your own objectives, financial situation and needs. While we take reasonable care in providing the blog, we give no warranties or representations that it is complete or accurate, or is appropriate for you. We are not liable for any loss caused, whether due to negligence or otherwise, arising from the use of, or reliance on, the information and/or suggestions contained in this blog. All rates are quoted from the Travel Money NZ website and are valid as of 10 May 2019. *Terms and conditions apply to Rate Guard. Seehttps://www.travelmoney.co.nz/rate-guard for more information.