New Zealand: New Zealand Dollar weakens to near-five-year-low
February 18, 2015
The New Zealand dollar (NZD) depreciated to 0.73 NZD per USD on 29 January, which was 6.7% weaker than on the same day of the previous month and 11.6% weaker than on the same day of the previous year. The Kiwi has not been this weak since mid-March 2011. Over the course of the last months, the currency depreciated steadily after it hit a multi-year high in early July of last year. More recently, the Kiwi has appreciated slightly following the nearly-five-year-low it hit on 29 January. On 18 February it traded at 0.75 NZD per USD, which was 3.3% weaker than on the same day of the previous month.
The New Zealand dollar’s depreciation over the course of the past months mainly resulted from a more lax monetary policy stance. While the Reserve Bank of New Zealand’s (RBNZ) short interest rate tightening cycle between March and May 2014 drove the NZD up last summer, the currency weakened since the RBNZ paused the rate hike cycle. Expectations that the U.S. Federal Reserve would increase interest rates in the near future added to the depreciation.
In the RBNZ’s most recent monetary policy meeting on 29 January, the Bank abandoned its tightening bias for a more dovish stance, indicating that future rate cuts were as likely as rate hikes, triggering the NZD to depreciate sharply against the U.S. dollar at the end of January. A notable drop in 2014 in prices for dairy products, New Zealand’s key export, also contributed to the New Zealand dollar weakening last year. More recently, however, dairy product prices rose slightly on lower supply at the February GlobalDairyTrade auction, which led to a slight appreciation of the Kiwi in mid-February.
Author: Cecilia Simkievich, Economist