Reserve Bank of New Zealand`s monetary policy

A key point of the monetary policy statement from the RBNZ is the increase of the Official Cash Rate (OCR) by 25 basis points to take it to 3.25%. In addition to this, the GDP is estimated to have grown by 4% in the year.

The full monetary policy statement is available here.

We shall explore the effects of interest rate parity here, with the assumption that the starting point is at 0.86253 (5.00 am). As interest rate rises, demand for the currency would increase as investors would like to get a share of the higher interest. Theoretically with the increase of 25 basis points, the intrinsic value of NZD/USD should be 0.86469 (0.86253 x 1.0025)

NZD/USD at the time of this post was at 0.86816, where the 34.7 pip difference is due to investor sentiment and taking into account the optimism from the GDP estimates.