The New Zealand Dollar is trading higher against its U.S. counterpart on Wednesday, shortly after the Reserve Bank’s (RBNZ) Monetary Policy Committee agreed to reduce the current stimulatory level of monetary settings in order to meet its consumer price and employment objectives over the medium-term.
The RBNZ will halt additional asset purchases under the Large Scale Asset Purchase (LSAP) program by July 23, 2021. The Committee will keep the Official Cash Rate (OCR) at 0.25 percent and the Funding for Lending Programme unchanged, Reuters reported.
At 02:37 GMT, the NZD/USD is at .7005, up 0.0059 or +0.84%. This is up from the intraday low of .6939.
In its monetary policy statement, the RBNZ said the global economic outlook continues to improve, providing ongoing price support for New Zealand’s export commodities. Global monetary and fiscal settings remain at accommodative levels supporting the recovery in economic activity. Rising vaccination rates across many countries are providing further economic impetus. However, the need to reinstate COVID-19 containment measures in some regions highlights the ongoing global health and economic risks posed by the virus.
Recent data indicate the New Zealand economy remains robust despite the ongoing impact from international border restrictions. Aggregate economic activity is above its pre-COVID-19 level. Household spending and construction activity are at high levels and continue to grow. Business investment is now responding to capacity pressures and labor shortages, and measures of economic confidence continue to improve.
The Committee reiterated that there will be near-term spikes in headline CPI inflation in the June and September quarters. These reflect factors that are either one-off in nature, such as high oil prices, or expected to be temporary in duration, such as supply shortfalls and higher transport costs.
The Committee agreed that, in the absence of any further significant economic shocks, more persistent consumer price inflation pressure is expected to build over time due to rising domestic capacity pressures and growing labor shortages. However, the Committee noted that uncertainties remain as to the pace and magnitude of any pass-through of costs onto medium term inflation, especially given reported underutilization of labor, modest wage growth, and well anchored inflation expectations.
The RBNZ sent a hawkish signal to the financial markets by announcing the end of its bond purchases from next week. Traders were expecting the move to take place in August and are being forced to make aggressive price adjustments to the currency.
Technically, the main trend changed to up shortly after the news when buyers took out .7010, however, there has been little follow-through to the upside which suggests the move was likely fueled by short-covering rather than aggressive buying.
The key level to watch is .7027. If buyers can take this out with conviction then look for prices to possibly spike into .7081.