NZD/USD: Price Index of the Dairy Products and Efforts of RBNZ
NZD/USD: Price Index of the Dairy Products and Efforts of RBNZ
New Zealand’s economy is based on exports; the second largest export sector of the country’s economy is the timber industry and the largest one id agricultural sector. About 18% of the total exports belong to the dairy product. The largest purchaser of the New Zealand’s dairy products is China. Therefore, the decline in Chinese imports caused by slowdown of Chinese economic growth and low prices for dairy products and other agricultural products in the world have negative impact on the economy of New Zealand. Decline of the world prices of the commodities including dairy products reduces flow of export revenue to the country’s budget.
The other negative factor for the exporters is high rate of the national currency.
At the beginning of March RBNZ lowered interest rate by 0.25%, to 2.25% because of the concern of deterioration of global economy and inflation expectations in the country.
However, statement by the head of the US Fed Janet Yellen about the necessity of gradual increase in the interest rate caused the decline in the USD on the financial market. The pair NZD/USD also went down. Efforts of the RBNZ proved to be insufficient. Last week the pair NZD/USD rose above the level of 0.6900.
Today, after 16:00 (GMT+2) index price for dairy products as per Global Dairy Trade, will be released. Previous data showed the decline of the index by 2.9%. If the data released today shows further decline in the index, the pair NZD/USD is likely to go down, amid the decline in oil pro=ices and commodities.
Market participants are waiting for the minutes of the last FOMC meeting on Wednesday at 20:00 in order to receive indications of the future monetary policy in the USA. The US Fed plans to continue to increase interest rates this year, but they are going to do it gradually.
It is expected that RBNZ will continue to reduce interest rate and it may happen at the meetings in June and August.
Different monetary policies of the US Fed and RBNZ will be the main factors causing the decline in the pair NZD/USD in the medium-term.
