- Stephen Toplis, economist at Bank of New Zealand
After reaching a level of 88.35 U.S. cents on July 10, the New Zealand Dollar has been falling since then on a number of reasons including a mounting pressure from commodity prices, which declined for a fifth consecutive month in July, and increased demand for the U.S. Dollar, as a risk-off sentiment prevails in the market amid geopolitical tensions between Russia and the west as well as in the Middle East. Meanwhile, the Reserve Bank of New Zealand hinted at a period of interest rate's stability, after lifting its OCR to 3.5% in July. The central bank has faced some pressure from the Council of Trade Unions, which urged the RBNZ to halt raising cash rate, to stop the nations' currency appreciation.
Obviously, heating debate in the U.S. and U.K. over a potential benchmark interest rate hike sooner than expected is also going to be a major driver on the Kiwi over the coming months, with investors interest turning to the Greenback and Pound. On top of that, recently Prime Minister John Key said that he believes the Kiwi is currently overvalued, echoing the statement issued by the central banks at the end of July, which says that the present level of the currency is unjustified and unsustainable, given the exchange rate has yet to adjust to falling commodity prices, and there is potential for a significant decline. Thus, the recent correction that we have been observing over the past weeks is just the beginning.
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