Fundamental Comment

NZ dollar drops after RBNZ statement, sentiment shifts toward safety

NZ dollar drops after RBNZ statement, sentiment shifts toward safety

The New Zealand dollar dipped against its U.S. counterpart on Wednesday after the Reserve Bank of New Zealand held interest rates and pointed to further stimulus if needed.

The NZDUSD pair traded lower at 0.6442, easing from its highest level since June 11 recorded at 0.6533 on Tuesday.

The central bank decided to keep the official cash rate at 0.25 percent and the size of its quantitative easing programme at NZ$60 billion, while declared readiness “for the use of additional monetary policy tools as needed.”

“The Monetary Policy Committee is prepared to provide additional stimulus as necessary,” the RBNZ said.

In the coming months, the central bank may announce measures encompassing “a term lending facility, reductions in the OCR, and foreign asset purchases, as well as reassessing the appropriate quantum of the current LSAP,” the statement mentioned.

The RBNZ will adjust the size of the LSAP program in August according to the economic situation, especially as the tourism industry remains annihilated by border closures due to the spread of the virus worldwide.

The appreciation of the kiwi has resulted in diminishing export proceeds and blunted the inflation outlook, the RBNZ highlighted.

On the other hand, the US dollar index soared to 96.77, with the shift from optimism to pessimism as seven U.S. states reported marked increase in Covid-19 new infections.

Frets regarding a second wave of corona infections pushed European shares down to their lowest level in nearly a week.  

The Euro STOXX 600 slipped 1.14 percent to 363.20, failing to trail a rally to four-month high recorded in Asian shares, where a better than forecast business confidence reports from France and Germany were not capable of improving the sentiment.

Gold extended its advance for a fourth consecutive session to a zenith of $1773.45 an ounce, the highest since October 2012.

Later in the day, the International Monetary Fund may proclaim a more negative outlook for the world economy when it releases its new global economic forecasts

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