The New Zealand dollar is trading modestly higher against its USD as traders speculate the Reserve Bank of New Zealand could surprise markets and lower interest rates. Following its latest monetary policy, RBNZ left its benchmark interest rate unchanged at 2.5%. However, RBNZ Governor Graeme Wheeler called the kiwi “overvalued” and noted that the strong currency is hampering profits for New Zealand’s exporters. Wheeler has recently shown willingness to intervene in the forex market to force the kiwi lower, but has shown reluctance to lower rates or engage in Federal Reserve-style monetary easing. Still, RBNZ noted it will likely keep rates unchanged through the end of this year. With that in mind, some traders are betting the central bank will raise rates in the first quarter of 2014, but some are also thinking Wheeler’s comments about the kiwi being overvalued could mean a surprise rate cut is in the offing. “The overvalued New Zealand dollar is undermining profitability in export and import competing industries, and worsening drought conditions are creating difficulty in much of the country. Ongoing fiscal consolidation will also act to slow overall demand,” Wheeler said in a statement posted on RBNZ’s website. NZD/USD is higher by 0.02% at 0.8185, NZD/JPY is off 0.32% at 78.41 while EUR/NZD is down 0.03% at 1.5840.
EasyForexNews Research Team