The pound to New Zealand dollar interbank exchange rate fell a few cents this week, first because Parliament’s return to session has arguably put a spanner in the works of the UK’s Brexit progress. However, in addition, the so-called kiwi dollar strengthened, as the Reserve Bank of New Zealand (RBNZ) this week held interest rates at 1.0%, as forecast.

RBNZ keeps interest rates at 1.0% for now

RBNZ keeps interest rates at 1.0% for now

This Wednesday 25th September, the RBNZ’s Monetary Policy Committee (MPC) of central bankers voted to keep New Zealand’s interest rates steady, at 1.0%, their all-time low. This was in line with market expectations and follows the RBNZ’s surprise decision in August to aggressively cut borrowing costs by -0.5%.

According to the RBNZ’s accompanying statement, “The Monetary Policy Committee agreed that new information since the August Monetary Policy Statement did not warrant a significant change to the monetary policy outlook.”

The New Zealand dollar strengthened following the RBNZ’s announcement, because some money managers had thought that the Reserve Bank would heavily signal that it intends to cut interest rates in future. To be sure, the RBNZ said that interest rates will stay “low for longer” and that “there remains scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain our inflation and employment objectives.”

However, while some investors had forecast that the RBNZ would signal that it will almost certainly lower borrowing costs further in 2019/20, it's believed that this statement gives the central bank room to remain on hold in future, if need be. This has supported the kiwi dollar.

ANZ activity outlook, NZIER business confidence due

Looking to next week, there’s a range of New Zealand economic releases due that could influence the value of the NZD. To begin, this Sunday 29th September, we’ll learn New Zealand’s building permits statistics for August 2019. These are forecast to fall by -2.9%, following July’s -1.3% decline.

Then, on Monday 30th September, ANZ will release its September activity index, which is predicted to show that New Zealand’s business output eased by -3.5% this month, after August’s -0.5% decline. In addition, NZIER’s business confidence survey for Q3 is due too, following April to June’s result of -34%.

If these predictions are accurate, it will suggest that New Zealand’s economy has continued to decelerate recently. If so, this could weigh down New Zealand’s GDP growth over the Autumn and help convince the RBNZ to cut interest rates below 1.0% later this year.

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