"It is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level"
- Graeme Wheeler, RBNZ Governor
The Reserve Bank of New Zealand raised its official cash rate by another 0.25% last week, however, traders got extremely bearish on the Kiwi, with NZD/USD continue falling lower on Monday, hitting 0.8532 with more declines on the radar. The currency lost by close to a hundred pips immediately after the announcement, however, will there be any love for the Kiwi any time soon?
There are currently some arguments in favour of the central bank's intervention to talk down the Kiwi. The RBNZ also warned that current level of the exchange rate is unjustified by economic conditions. Currency intervention will be consistent with the central bank's Policy Target agreement, a public contract negotiated between the RBNZ and the government, which defines the price stability. Furthermore, market conditions are opportune and there is a high possibility of success, as Wheeler already claimed the currency has a potential for a sharp fall.
Analysts are pricing in odds of seeing another OCR hike in the next few months, while some do not believe there will be more action until March 2015. While short-term outlook for the currency remains bearish, sooner or later traders will be drawn back to the positive interest rate differential of buying the New Zealand Dollar versus lower-yielding currencies, meaning in a longer term perspective the currency will continue climbing higher.
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