The New Zealand Dollar saw a steep rise to 0.7040 levels on Wednesday, July 14, 2021, on the RBNZ announcement to halt bond buying from July 23.
New Zealand benchmark rate remains unchanged at 0.25%.
Covid conditions are comparatively better in the Asia-Pacific zone, says New Zealand PM. It is time to roll back monetary stimulus as the economy recovers from the pandemic, state authorities.
New Zealand Dollar Rises 1% on Positive Note on Economy
The New Zealand Dollar surged sharply towards 0.7040 levels against the USD, as the RBNZ announced a rollback of quantitative easing. The economy has gone up by 1.6% in the first quarter of 2021. The hawkish approach has induced a positive tone into investor sentiment, driving up the forex market.
The NZ Dollar to US Dollar is below the 0.7100 levels in July. But the RBNZ statement to halt bond buying from July 23 saw a sharp rise in the NZD/USD rate.
The NZD/USD is at multi-month lows at levels last seen in March 2020. On July 20, the NZ Dollar to US Dollar slipped to its lowest point in 2021 towards the 0.6915 levels.
Currently, NZD/USD currency change is at 0.6970, at levels last seen in March 2021.
RBNZ to Reduce Monetary Stimulus
RBNZ plans to roll back pandemic stimulus.
Adrian Orr, Governor of the New Zealand central bank, states that there are signs of recovery in the economy, especially in job growth. The monetary policies that supported the country from the start of the pandemic should come down, as there is an overall economic recovery. Bond purchasing will stop from July 23, say authorities.
The RBNZ considers reducing monetary stimulus to bring down inflation in the country. The central bank intends to tighten 19bps by the next quarter and by 38bps in six months.
New Zealand has kept the Official Cash Rate at 0.25%. The RBNZ states that the current stimulatory level has to be brought down, showing a hawkish attitude. The RBNZ has decided to stop bond buying from July 23, 2021, as a measure to rollback quantitative easing in the country.
The NZ Dollar to US Dollar currency exchange rate moved with a positive note on the RBNZ approach to hold bond buying. But the currency exchange rate continues to drift lower towards 0.6972 levels on Tuesday, July 27.
New Zealand Becomes First Nation to Reduce Stimulus Measures
The Purchasing Manager’s Index (PMI) is at 60.7 in June 2021, above the previous reading of 58.6. The NZ PMI is above 50, which shows that the manufacturing sector is healthy with good production growth. It is the second time that the PMI is above the 60-mark in four months. There is an increase in new orders, and production is rising at a solid pace. Job creation has accelerated with good production numbers.
The Global Dairy Trade Price Index shows improvement at -2.90% in July 2020, while it was -3.60% earlier. It is the leading indicator of the trade balance in New Zealand. It accounts for almost 29% of the country’s exports. The NZD/USD currency exchange rates have improved, with increasing commodity prices and higher export value.
Business confidence is coming down with inflation worries. Though a bit of inflation is a good sign of recovery in the country, prices are rising fast, affecting consumer sentiment. The purchase of autos and homes is falling to lowest levels, seen last in 1982. The NZ Dollar to US Dollar currency change weakness reflects inflation worries.
Inflation is prevalent though there is an economic recovery in the country. It is curbing the willingness to make new purchases as people are not willing to spend more.
The trade surplus has come down to $NZ261 million New Zealand dollar in June, while it was $NZ 489 million in May 2021.
Covid-19 Helps in New Zealand Economic Recovery
Life is returning to normal in New Zealand. The mask mandate restrictions have come down, indicating that the Covid pandemic shows signs of reducing. But the Delta variant keeps the government vigilant to reduce infection numbers.
The RBNZ brought in quantitative easing through a massive bond purchase program at the start of the 2020 pandemic. The central government’s extensive measures kept the economy from falling into a recession while many developed countries began to spiral lower. Various steps to curb the coronavirus infections and massive vaccination rollout also helped to keep the economy afloat.
Now that the country is returning to normal, the government intends to halt its policy stimulus.
US Dollar Index
The US will also taper stimulus in the July meeting, state experts, as the coronavirus scare is coming down. But the Delta corona variant may derail the global economic outlook, say experts.
FOMC monetary policy meeting on Tuesday will help to determine the NZD/USD foreign currency exchange movements. The US Treasury bond yields have come down, and the demand for the safe-haven US Dollar index has also come down.
The US Dollar Index in the foreign exchange market has weakened ahead of the Federal Reserve meeting next week.