Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

New Zealand’s Surprise Interest Rate Cut Highlights Concern Of A Global Currency War

Interest-Rates / Currency War Mar 29, 2016 - 09:00 AM GMT

By: Nicholas_Kitonyi

Interest-Rates

On Wednesday March 9th the Reserve Bank of New Zealand announced a surprise cut in New Zealand’s benchmark interest rate by 25bps to 2.25%. That is the fifth rate cut by the RBNZ since June in the hope to spur economic growth and to boost exports by weakening the New Zealand dollar. This is a historic low for New Zealand’s interest rate.


New Zealand’s economy is directly affected by China, as China is its largest trade partner and a major buy of New Zealand’s largest export, dairy products. The concern of a slowdown in Chinese growth is one of the main reasons for the cut in the benchmark interest rate, according to a statement by the RBNZ.

RBNZ Governor Graeme Wheeler stated that "pretty well most central banks would like to see their exchange rates lower," and a drop in the NZD would "be appropriate given the weakness in export prices." Furthermore, the RBNZ has the target to keep inflation between 1% and 3%, and with its current inflation at 0.1%, the RBNZ felt it was time to act and cut rates to increase economic growth and, therefore, also New Zealand’s inflation rate.

Increased Volatility In Currencies Due To A Global Currency War
Since China devaluated the yuan in August 2015, many of its key trading partners have tried to weaken their own currency to stay competitive with the Chinese. This creates increased volatility in the currency markets, as central banks are intervening in their domestic currency.

This is also referred to as a ‘global currency war’, as countries are trying to outcompete each other at weakening their domestic currencies. This includes New Zealand. For example, the NZD weakened by 1% the day when the RBNZ announced the surprise interest rate cut, even though the stated reasons for the rate cut, as mentioned, were to spur economic growth and increase inflation. The Reserve Bank of New Zealand is expected to continue cutting interest rates through 2020, as it seeks to spur economic growth.

For currency traders there are a range of forex trading signals to keep an eye on. But rarely is one as clear as when a country’s central bank announces a surprise interest rate cut to ensure a weakening of its currency. This is something to keep in mind, when trading currencies in the current global economic climate, especially when trading on days of interest rate decisions.

Most countries want to weaken their currencies to make their exports more competitive, so that they can boost economic growth. If you are trading currencies this is an important trend to monitor, so that you don’t get caught out by being positioned wrong. Remember the old saying ‘the trend is your friend’.

Europe Is Playing The Same Game
The ECB has cut its benchmark interest rate to zero on Thursday to weaken the euro, so that it can boost economic growth in the struggling Eurozone area. President of the European Central Bank Mario Draghi stated that “the Governing Council expects key interest rates to remain at present or lower levels for long period of time and well past the horizon of our net asset purchases,” Based on the current situation, “we don’t anticipate it will be necessary to reduce rates further.”

This indicates clearly to the market that the European Central Bank, just like New Zealand and many other countries, intends to keep its currency as weak as possible to boost exports. The ECB also stated that it will continue with its quantitative easing program to keep the Eurozone’s economy moving forward, and that without Thursday’s rate cut and the new stimulus package, the Eurozone would have experienced “disastrous deflation”.

By Nicholas Kitonyi

Copyright © 2016 Nicholas Kitonyi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules