New Zealand: New Zealand Dollar weakens to six-year-low in mid-July
July 17, 2015
The New Zealand dollar (NZD) depreciated to 0.66 NZD per USD on 16 July, which represented a 5.7% depreciation over the value on the same day of the previous month and was 24.4% weaker than on the same day of the previous year. The Kiwi has not been this weak since mid-July 2009. The currency has been on a depreciating trend since it hit a multi-year high in early July of last year. The pace of depreciation became sharper starting in May.
The significant New Zealand dollar’s depreciation over the course of the last few months mainly resulted from a surprisingly sharp slump in dairy prices, as dairy products are New Zealand’s main exports and principal source of foreign currency. Prices at the GlobalDairyTrade auction fell to a six-year low in July as demand wains while global supplies remains robust, raising fears that prolonged weakness of the external sector could weaken the whole economic dynamic of the country. Expectations that the U.S. Federal Reserve would increase interest rates in the near future added to the depreciation.
The Reserve Bank of New Zealand’s (RNBZ) most recent monetary policy meeting on 11 June saw a reversal of its relatively tight policy stance, cutting its OCR rate by 0.25 percentage points from 3.50% to 3.25% as a reaction to the low inflation environment and rapidly depreciating currency. As the situation kept on worsening throughout the month, the RNBZ is expected to react with aggressive rate cuts in the next few months.
Author: Eric Denis , Economist