- The New Zealand Dollar rallied after the release of the RBNZ’s financial stability report
- Sentiments from the statement leads the market to speculate a rate cut is less imminent
- The central bank voiced concern over the health of the housing and dairy sector
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The New Zealand Dollar rallied against the greenback after the RBNZ’s financial stability report led the markets to believe a rate cut is less imminent. The central bank said “there is less scope for monetary policy easing to offset a sharp rise in funding spreads.” It was also noted in the statement that the transmission of monetary policy may be affected by a lack of participants in the FX swap market and banks having lower risk-appetite.
In general, the report noted that financial stability risks had risen. The report highlighted the health of the housing and dairy sector in particular. Home prices in Auckland now exceed gross income by nine times. The cities of Hamilton and Tauranga reported property price inflation of 18 percent and 14 percent year-over-year respectively. The RBNZ fears a significant correction in these assets could undermine the economy’s financial stability due to bank’s large exposure.
New Zealand’s top exported good, dairy, has been hurt by the decrease in Chinese demand and the fall in commodity prices. The country’s central bank is concerned that indebted dairy farms may be negatively affected if the commodity’s price continues to fall.