Aside from the latest interest rate hike by the Reserve Bank of New Zealand, there are a couple of other factors that could allow the New Zealand dollar to extend its rally to a longer-term one.
The first of this is the speech by Deputy Governor Grant Spencer earlier this week. He mentioned that the RBNZ’s decision to implement lending limits before did the work of a couple of interest rate hikes and now these limits might need to be adjusted or removed in anticipation of further rate hikes. He added that this move did a good job of keeping housing price inflation contained and that they had less need to jawbone the New Zealand dollar back then.
New Zealand Dollar Fundamental Outlook
Kiwi bulls added to their positions upon finding out that an RBNZ official is anticipating more rate hikes in the near future. The potential removal of lending limits also opens the possibility of easier credit conditions, which could benefit borrowers and businesses locally and internationally.
Aside from that, the promise of positive carry is keeping the New Zealand dollar more appealing than its other major counterparts. Buying the New Zealand dollar against lower yielding currencies such as the US dollar or the Japanese yen has a positive interest rate differential, which means that longer-term traders can earn additional profits simply by keeping a long NZD trade open for more than a day.
Of course the possibility of jawboning from New Zealand financial officials is still in the wings, and this could be a possible reason for a decline in the currency. Nevertheless, strong performance by the New Zealand economy is currently supporting the NZD/USD uptrend for the near term.
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