As expected, the RBNZ raised rates by 25bps, for an overnight cash rate of 3.5%. Despite the rate rise, NZD sold off immediately, as a result of dovish comments from RBNZ Governor Graeme Wheeler, keeping prices at 6-week lows.
- Key comments from RBNZ Graeme Wheeler
- Reserve Bank Of NZ Raises Cash Rate Target 25 Bps To 3.50%
- Economic Growth In Trading Partners Has Eased, Appears Temporary
- House Price Inflation Has Moderated Further Since June Statement
- Christchurch Rebuild, Immigration Adding To Housing And Household Demand
- Fall In Prices For NZ Export Commodities Reduces Primary Income
- Inflation Remains Moderate, Strong Growth Absorbs Spare Capacity
- NZ Dollar Unjustified, Unsustainable, Potential For Significant Falls
- Further Rate Increases Depend On Monetary Policy Impact, Data
- Prudent to Assess Impact Before Interest Rates Adjusted Further
In summary, unless we see improved data, rates will remain at 3.5% for some time. An interesting observation is that the kiwi dollar sold immediately when the rate decision was released which suggest longs saw it as an opportunity to get rid of their positions. The clues preceding the bearish move were in how price declined from the highs on lower dairy prices and soft inflation data - it covered the same distance in 3 days which took the bulls 20 days to accomplish.
The accompanying rate statement has kept prices down as opposed to driving the sell-off, and even a positive trade balance that soon followed was not enough to stall the decline.