New Zealand Dollar Rallies on Improved RBNZ Growth Expectations

Talking Points:

• RBNZ raises the target interest rate 25 bps to 2.75%
• RBNZ also announces improved growth expectations
• New Zealand Dollar rallies on the GDP outlook

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The Reserve Bank of New Zealand raised its target interest rate by 25 basis points to 2.75% in its March meeting, as was expected by all 15 economists surveyed by Bloomberg.

The central bank also raised its growth forecasts for 2015 to 3.2% from 2.8% and for 2016 to 2.2% from 2.1%. The central bank announced that it sees inflation reaching the 2% midpoint of its target range by the second quarter of this year, and the RBNZ added that inflationary pressures are increasing.

The RBNZ also said that the current exchange rate is not sustainable in the long run and is creating headwinds. The Reserve Bank mentioned in the statement that it expects the interest rate to be raised by two percentage points over two years, of which Governor Wheeler said in a press conference that he sees 125 basis points this year.

The New Zealand Dollar at first fell by thirty pips as the announcement of the rate hike did not surprise analysts and the RBNZ sounded caution over the exchange rate. However, the Kiwi soon rallied on the significant rise in the central bank’s expectations for future growth.

NZD/USD reached a new daily high at .8507 at the time of this writing and may next see resistance by the recent 4-month high at .8523.

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NZD/USD 1-Minute: March 12, 2014

Chart created by Benjamin Spier using Marketscope 2.0. Add DailyFX Support/Resistance to your charts at FXCM Apps.

-- Written by Benjamin Spier, DailyFX Research. Feedback can be sent to [email protected] .