New Zealand Dollar Sinks to a Three-Week Low

New Zealand’s dollar sank to a three-week low on Tuesday as the Reserve Bank of New Zealand moved to rein in the Auckland housing boom.

The RBNZ governor Graeme Wheeler had previously said tougher controls for real estate investors could be implemented in the second half of the year to curtail high debt to income ratio.

While Reserve Bank deputy governor Grant Spencer also admitted high debt to income is unhealthy. He acknowledges the challenges involve in implementing those controls.

But with weaker than expected inflation in the second quarter of the year, and the fact that overpriced houses made up the bulk of 0.4 percent surge in inflation, intervention is eminent.

Prices actually contracted by 0.5 percent, if fuel and house price inflation are factored out. A situation most economists predicted would compel Governor Graeme Wheeler to lower borrowing costs by 25 basis points to tackle weak inflation.

“The very tight timeline proposed for implementing the added restrictions reinforces the likelihood of the RBNZ cutting in August especially following softer New Zealand second quarter inflation,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney.

The Kiwi dropped 1.1 percent more on Tuesday after RBNZ said investors in the housing market across the country need to have a deposit of at least 40 percent.

The Kiwi is the worst-performing currency among the 16 major currencies in the past week.