The New Zealand dollar is one of the currencies that gained the most from the March plunge. From the bottom of 18 March to the present day, the exchange rate of the NZD/USD currency pair has increased by about 20 percent, at its peak it reached almost 25 percent. For several days now, however, the NZD has been under pressure from the interest rate and bond markets, among others.
New Zealand's three-year reference bond yields have fallen below zero for the first time due to growing expectations of the negative interest rate that the RBNZ (Reserve Bank of New Zealand) can introduce, Bloomberg data shows. Interest rates on New Zealand bonds maturing in April 2023 fell by as much as 6.5 basis points with an average rate of return of -0.006%.
At present, the main interest rate in New Zealand is 0.25 percent. Meanwhile, the interest rate market assumes that there may be a 50-basis-point reduction by the fourth quarter of 2021, bringing the OCR to -0.25 percent. Commercial banks such as ANZ Bank and Bank of New Zealand also forecast that the main interest rate will fall by April 2021.
By lowering interest rates, the RBNZ will try to stimulate economic growth and inflation resulting from the economic collapse caused by the COVID-19 epidemic. However, for the New Zealand dollar, parliamentary elections may also be important. The ruling Labour Party has announced that if it wins the elections next month, it will raise taxes for top earners. In this way, politicians will want to plug the hole in the state's finances to some extent due to the growing debt.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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