Kiwi Drops Against Majors as RBNZ Says Currency Still OvervaluedCandice Zachariahs
The New Zealand dollar fell against its 16 major peers after the Reserve Bank left benchmark rates unchanged at a record low and said the currency remains overvalued.
The kiwi fell as Governor Graeme Wheeler reiterated that he is prepared to intervene in currency markets to cap gains. The bank lowered economic growth estimates and maintained its forecast for the three-month bank bill yield, suggesting no increase to the benchmark until mid-2014. Declines were tempered as policy makers repeated concern about rising house prices.
“This was not quite as hawkish as the market had expected and that’s why the kiwi is selling off a little bit,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “The market had already priced in a hawkish outcome over the last few days.”
The kiwi dollar slid 0.5 percent to 79.52 U.S. cents as of 7:37 a.m. in Sydney, paring yesterday’s 1.5 percent surge. It declined 0.5 percent to 76.35 yen. Australia’s dollar was down 0.1 percent to 94.71 U.S. cents.
New Zealand’s central bank today maintained its forecast the three-month bank bill yield will rise to 2.8 percent in the second quarter next year from an estimated 2.7 percent in the current quarter.
“The New Zealand dollar remains overvalued and continues to be a headwind for the tradables sector,” Wheeler said in a statement today after leaving the Official Cash Rate at 2.5 percent. “We expect to keep the OCR unchanged through the end of the year.”
The RBNZ cut its forecast for gross domestic product growth in the year through March 2014 to 3 percent from 3.3 percent, and left its projection for the following year at 2.8 percent. It raised its inflation forecast for 2014 to 1.9 percent from 1.7 percent. Inflation isn’t projected to reach 2 percent, the midpoint of the RBNZ’s target range, until the second quarter of 2015.
The bank raised its projection for the 90-day bank bill yield from the first quarter of 2015, predicting it will climb to 4 percent by the end of that year compared with its previous forecast of 3.8 percent.