- Reserve Bank of New Zealand
The New Zealand Dollar strengthened following the Reserve Bank of New Zealand's stability report, which reiterated that the central bank is still in a tightening cycle and will proceed with hiking interest rates. The Kiwi gained to 78.24 US cents from 78.09 cents. The central bank's financial stability report indicated the bank's intentions to keep high loan-to-value-ratio restrictions to keep house price inflation under control. RBNZ Governor Graeme Wheeler said that pressures in the housing market have cooled since the implementation of the LVR 'speed limit' in October 2013 and subsequent lifts in interest rates. Also, the report highlighted that still-unsustainable level of the nation's currency as well as increasing exposure to China have raised risks to the country's financial stability. The New Zealand currency has lost around 10% versus the US Dollar from its recent high in July, and around 5% on a trade-weighted basis. Nevertheless, the RBNZ believes that the depreciation has been less than the decline in New Zealand's export commodity prices over the past year, which is placing great strain on exporters, particularly in the dairy sector. In addition, China currently makes up around 20% of New Zealand's exports, with robust demand for dairy products fuelling growth in the trade relationship over the past few years. Chinese demand is expected to recover from a lull early this year, the RBNZ said, as Chinese inventories of dairy from 2013 diminish.
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