NZD/USD remains bid despite NZ’s Treasury’s downward revision of neutral interest rate

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  • New Zealand’s Treasury revised neutral interest rate forecasts lower by 75 basis points. 
  • Treasury warned about downside risks to the economy. 
  • NZD/USD is showing resilience to negative newsflow. 

NZD/USD continues to march higher despite the decision by New Zealand’s Treasury to revise lower its estimate for neutral interest rate by 75 basis points to 3%. 

The neutral rate of interest the rate at which monetary policy is neither contractionary nor expansionary. To put it another way is the short-term interest rate that would prevail when the economy is at full employment and stable inflation, according to brookings.edu. 

A downward revision of interest rate forecasts usually hurts the home currency. The Treasury also warned about downside risks to New Zealand’s economy, citing worsening business surveys and global sentiment. So far, however, the NZD has shown no signs of stress. 

In fact, NZD/USD is now trading at a fresh session high of 0.6451 and is closing on the 100-day average resistance at 0.6463, as expected. The pair was trading around 0.6433 an hour ago. 

NZD’s resilience is not surprising as dovish RBNZ expectations have been priced in. The Reserve Bank of New Zealand (RBNZ) stunned markets in August by cutting the official cash rate (OCR) by a bigger-than-expected 50 basis points to 1.00%.

 



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