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New Zealand Dollar Falls After RBNZ Keeps Interest Rates at Record Low

8/9/2018, 1:40:08 PMBasics of Trading
New Zealand Dollar Falls After RBNZ Keeps Interest Rates at Record Low

The New Zealand Dollar fell on Thursday after the Reserve Bank of New Zealand said it expected to keep rates at record low of 1.75% for another two years, as the outlook for the country’s economy remained weak.

The NZD/USD pair fell 0.82% to 0.6679 by 1:13AM ET (05:13 GMT). Central Bank governor Adrian Orr said on Thursday in Washington that he is open to a rate cut if needed.

“We expect to keep the OCR at this level through 2019 and into 2020, longer than we projected in our May statement,” Orr said. “The direction of our next OCR move could be up or down.”

In addition, the central bank trimmed its forecast for economic growth in 2018 as data showed business confidence fell, while housing markets also cooled.

Risks to New Zealand exports also increased amid global trade tensions, RBNZ noted.

Meanwhile, The Chinese yuan rose 0.2% against the dollar on Thursday. An article by CNBC said the recent weakness in the Chinese currency is creating challenging headwinds for Beijing's push to promote its currency globally.

The yuan was under pressure since July amid an on-going trade dispute with the U.S., and analysts now believe its push to become a global currency is likely to suffer a setback.

"Renminbi internationalization could be slowing down temporarily in the second half of this year," Ken Cheung, senior Asia foreign exchange strategist at Mizuho Bank in Hong Kong, told CNBC, citing the disruption caused by the trade war.

Separately, in a report released Tuesday, IHS Markit economists said the decline in yuan started earlier in the year as the Federal Reserve continued to raise interest rates.

"As long as there is more tension or more uncertainty around U.S. and China trade, then you can imagine the trade volume between the U.S. and China will come down," he said. "And that sets back the overall renminbi internationalization in terms of the usage of renminbi as a trade settlement currency."

The U.S. Dollar Index, which tracks the greenback against a basket of other currencies, edged up 0.03% to 94.98 on Thursday.

The dollar was trader slightly weaker against the Japanese yen however, with the USD/JPY pair slipping 0.06% to 110.96.