New Zealand Dollar Hit Hard by Fitch Credit Rate Outlook Downgrade to 'Negative'

Last night we saw the New Zealand dollar pull back very sharply, but this actually had little to do with the New Zealand data on hand.

While the consumer price index rose 0.6 percent during Q2, and the annual rate of growth fell less than expected to 1.9 percent from 3.0 percent. Ultimately, this leaves inflation within the Reserve Bank of New Zealand’s target range of 1 percent - 3 percent, and since the decline wasn’t as steep as anticipated, suggests that there is little need for the central bank to cut rates. Instead, the currency responded to news that Fitch Ratings had cut New Zealand’s long-term sovereign credit rating outlook to negative due to a risk that the nation faces a “low-growth trap as foreigners demand higher returns” and on concerns regarding “the medium-term growth outlook for New Zealand given its persistently large current account deficit and rising foreign indebtedness.”

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