Date: 21 Aug 2018

The IMF might have had qualms about the idea but New Zealand’s parliament has now passed into law legislation that bans many non-resident foreigners from buying existing homes in the country. In truth house prices in New Zealand have been coming off their peak for some time with the Reserve Bank of New Zealand (RBNZ) having previously imposed lending restrictions. At the same time the multi-year economic stimulus caused by the need to rebuild after the 2011 Christchurch earthquake is starting to fade. On the other hand the country’s coalition government, formed last year, has embarked on a programme of higher public spending and the NZD (NZDUSD, AUDNZD, NZDJPY, GBPNZD) has fallen over the last 12 months. That might have led markets to expect that the RBNZ would be minded to adopt a slightly tighter monetary policy as an offset, but so far there’s no sign of that. Indeed, while in May the RBNZ was projecting rates up to 2.0 per cent from the current 1.75 per cent by March 2020, earlier this month it signalled it felt rates would stay as currently until late 2020. “On balance we just need to be continuing to make sure that we are blowing wind into the sails of the economy for some time yet,” said RBNZ Governor Adrian Orr. Traders will have their own views but there’s an argument that while the RBNZ has decided to keep blowing winds into the sails of the local economy, it’s creating a mighty headwind for the NZD.

by Neal Kimberley, External Currency Analyst.