- Grant Spencer, deputy RBNZ Governor
The Reserve Bank of New Zealand made two consecutive rate hikes in March and April, bringing the official cash rate to 3.0%. On the back of hawkish comments from policymakers and tightening of the monetary policy, the kiwi performed an impressive rally and now, the strength of the domestic currency is one of the major concerns for policymakers. Now it is all about the exchange rate.
During the last week we saw a waning interest to buy the kiwi, as following a rally before the unemployment data, the currency index lost 0.23%. The absence of kiwi buying was provoked by the warning shoot aimed at the financial markets by the central bank's governor and his deputy. Despite warning comments, there is a potential the currency will rise further, as Tuesday's government budget is likely to push the currency higher. Markets are now focusing on June 12 monetary policy statement. However, in case markets maintain a strong level of the kiwi and the TWI index will hover above 80.00 over the next four weeks, the central bank will be under the serious pressure to deliver on their threat of the market intervention. However, it is a well-known fact that selling the currency is like using a peashooter against the elephant and will have a muted impact on the exchange rate. Analysts are making their bets there will be two more hikes over next three months and currently everything is in investors' hands.
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