The Reserve Bank of New Zealand lowered the benchmark cash rate by 25 points for the first time in four years. As a result the NZ$ is already down 2%; furthermore, analysts don’t expect this trend to change.
The currency is often referred to as Kiwi, but don’t mistake it for being fun and tasty ! The TBNZ has already signaled it wasn’t done with the cuts – which will likely lead to further devaluation of the currency. When is this schedule ? Economists believe another cut will take place next month, followed by one more in September.
Moreover, interest rates in New Zealand are not expected to be raised until mid-2016. This will have them fall behind the US even more and weaken the Kiwi. The Economy is currently struggling with the weakening demand for dairy products which account for 20% of the nation’s export income.
While a weaker currency makes it easier to export, it poses a serious threat to housing prices. Auckland has experienced aggressive price increases in recent month and if this trend is not put into check it might lead to the next housing bubble in NZ.