The Reserve Bank of New Zealand left the Official Cash Rate (O.C.R.) at 2.5% while domestic demand remains moderate and concerns continue over the condition of the global economy...
The Reserve Bank of New Zealand left the Official Cash Rate (O.C.R.) at 2.5% while domestic demand remains moderate and concerns continue over the condition of the global economy. The rate was held constant rather being reduced like other regions have done (e.g. Australia) as country officials expect economic growth to come out of economic activity in the newly constructed Christchurch city and surrounding Canterbury region. As of last month, officials projected that an increase to the rate could be implemented in middle of 2012. The Reserve Bank Governor, Alan Bollard stated that market sentiment had improved slightly since December’s release as liquidity had increased slightly. Additionally, the New Zealand dollar has seen increases as one of the best amongst ten different currencies over the past month, gaining 5.4% in valuation.
Yet, increases in the New Zealand dollar as well as economy slowdowns in Australia and Asia, New Zealand’s largest export consuming regions, have caused reductions in country export yields. Additionally, the European fiscal dilemma is increasing costs for international funding. This could affect New Zealand banks’ abilities to provide funding as well as increase the banks’ funding costs. Furthermore, the housing market and consumer spending are in need of additional repair. Inflation has shown containment despite the European debt issues, sitting at less than 2.0%. Consumer prices within the county surprisingly fell below economists’ expectations for the fourth quarter while rising 1.8% for the year. The result was within the targeted 1%-3% required rate. Despite this, credit and debit card spending fell alongside job advertisements last month. Business confidence also reduced as profits in the fourth quarter lowered with little expectation for improvement in the coming new quarter.
The NZDUSD has continued to rally higher after the rate announcement. The pair is trading near 0.8210 and is testing resistance which was the high established on October 28th. If the pair breaks above this level, the NZDUSD could target 0.8350 which was the high established on September 16th.
Eugene Ross, Analyst
Admiral Markets
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