In the early hours of today's trading session, the Reserve Bank of New Zealand decided to keep the key cash rate at 1.75%, thus further prompting concerns over the sluggish international trade, citing it as one of the core reasons why the core consumer prices missed the inflation target rate by 0.1%.
According to the statement released by the bank, the trading woes of its main economic partners – Australia, Europe and China – have strained the kiwi and most specifically the growth of the local housing market.
The central bank also states that is has been compelled to keep the cash rate low, in order to stimulate the housing market and also to encourage more business investment and boost local demand.
As we pointed in our review of the important upcoming events for this week the most important part of RBNZ's decision for the NZD was its stance on potential rate hikes.
"Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down."
The market reacted considerably to the news that the central bank might be inclined to lower its cash rate on the very next session even. As a result, the NZD depreciated against the greenback with 1.40% within an hour after the decision was released.
The NZDUSD currency pair has been trading in a range before the release of the report, after which the price fell to 0.67990.
Image source: Trendsharks ©, created with TradingView.com
RBNZ is yet another central bank to express concerns over the restrains on international trade, after the ECB, BOJ and the FED, adding fuel to investor concerns over the global economic slowdown, its impact on the inverted yield curve of US debt and the possibility for a new recession. You can find more information about the real prospects of a new economic crisis here.
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