New Zealand dollar continued its decline against the greenback on Wednesday, as market players abstained from operating with riskier assets ahead of the release of the minutes of Feds July meeting on monetary policy.
NZD/USD fell to its lowest point today at 0.7907 at 1:50 GMT, after which consolidation followed at 0.7935. Support for the pair was expected at August 7th low, 0.7884, while resistance was to be encountered at current session high, 0.7985.
The kiwi dollar came under pressure, after on Tuesday it became clear that Reserve Bank of New Zealand (RBNZ) is going to impose restrictions to home lending in order to protect country’s financial system against a possible home price bubble. The central bank projected that house price inflation could decelerate to half its current rate as a result of the new mortgage-lending restrictions. House price inflation could be reduced by between 1 and 4 percentage points during the first year. Currently inflation of house prices stands at 8.1%, marking the highest point since January 2008, according to Quotable Value New Zealand.
“Although the intention to cool the housing market may decrease the need to increase interest rates anytime soon, it is highly questionable if such measures will be sufficient in decreasing the risk of a major housing bubble,” Manuel Oliveri, a currency strategist at UBS AG in Zurich, wrote in a research note dated today, cited by Bloomberg. “NZD upside risk remains intact.”
Traders saw a 11% chance that the RBNZ will consider to raise its benchmark interest rate from an all-time low of 2.50% by the end of this year, Bloomberg reported.
In the mean time, investors attention was focused on the minutes of Federal Reserve Banks meeting in July, which could give indications on the timing of central banks stimulus program scale back. Measures such as pouring 85 billion US dollars of bond purchases in economy are usually meant to debase the national currency by decreasing interest rates, but recently the yields on US 10-year government bonds have been climbing, which could imply that expectations were that asset purchase tapering may happen sooner rather than later.
Elsewhere, the kiwi dollar was lower against the Aussie, with AUD/NZD cross gaining 0.17% to trade at 1.1393 at 6:38 GMT.
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