Further Stimulus As Necessary
The New Zealand Dollar has seen better buying again this week despite a further set of dovish comments from the RBNZ. Speaking overnight, the governor of the RBNZ Adrian Orr once again signalled the bank’s readiness to provide further monetary policy stimulus as required to help stave off low inflation or, in the worst-case scenario, deflation.
During a speech made in Wellington on Wednesday, the RBNZ governor warned that “Consistently below target inflation has its own unique challenges that are best avoided”. While Orr acknowledged that persistently low interest rates can lead to skewed risk taking in the economy, given the current state of the economy as a result of the ongoing fight against COVID-19 “we strongly believe that the best contribution we can make to our monetary and financial stability mandates is ensuring we head off unnecessarily low inflation or deflation, and high and persistent unemployment”.
Orr Reaffirms RBNZ Committment To Easing
The RBNZ head reaffirmed the bank’s commitment to using any and all tools to help boost the economy and reiterated its message that it is preparing a fresh package of stimulus to be used if required. The RBNZ recently advised markets that it is discussing the use of negative rates which many feel might come into play across the end of the year and into 2021.
Commenting further, Orr said: “The policy tools that we’ve used to date and the additional tools that we are considering using as a package in the near future are not new to central banking”. The RBNZ head went on to say: “The instruments include various forms of negative wholesale interest rates, further quantitative easing using large scale purchases of domestic and foreign assets, direct lending to banks, and forward guidance as to what needs to be done under certain conditions.”
The New Zealand economy has come off relatively unscathed when compared with many of its trading partners. However, with concerns over the outlook for the export market, which is dependent on global demand, and with the risks of a further lockdowns in future, there is still plenty of uncertainty and downside risk in the outlook.
A Word on Guidance
Finally, Orr ended the speech saying: “Our next near-term challenge is to outline our future monetary policy strategies and tools, and when we might use them. We are well prepared for this challenge.”
NZDUSD (Bullish above .6713)
From a technical viewpoint. NZDUSD continues to move higher here. Having broken out above the long term bearish trend line, price has since retested the level and found support taking the pair back up above the .6713 level resistance. While this level holds as support, the near term outlook remains bullish with the .6934 level the next objective for bulls.
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