Investing.com - The New Zealand dollar jumped on Wednesday after the central bank governor said it should be weaker consistent with the economy while adding that sharply lower interest rates are not the way to that goal.
NZD/USD traded at 0.6720, up 0.62%, while AUD/USD traded at 0.7342, up 0.09% and USD/JPY changed hands at 123.59, up 0.02%.
A weaker New Zealand dollar would be consistent with current economic conditions, Reserve Bank of New Zealand Bank Governor Graeme Wheeler said Wednesday in a speech on monetary policy, dismissing predictions for large declines in interest rates because that would be consistent with the economy moving into recession.
"Our models suggest that the real exchange rate is currently in the vicinity of its long-run equilibrium value - if growth, inflation, and the terms of trade were at their long-run trends. However, the exchange rate remains above the level consistent with current economic conditions and, in particular, the current low level of export prices," Wheeler said in a speech delivered to ExportNZ in Tauranga, New Zealand.
The current account deficit level is expected to become larger over the next two years based on recent New Zealand dollar level and terms of trade, he said.
"At current levels of export prices, a more substantial exchange rate depreciation is therefore required to stabilise the net external liabilities position relative to GDP," he said.
Ahead are Japan retail sales for June with a 0.5% gain seen year-on-year.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell 0.01% to 96.75.
Overnight, the dollar trimmed gains against most of the other major currencies on Tuesday, after data showed that U.S. consumer confidence deteriorated this month, while markets awaited the conclusion of the Federal Reserve's policy meeting this week.
The Conference Board, a market research group, said its index of consumer confidence fell to 90.9 this month from a downwardly revised 99.8 in June. Economists had forecast a reading of 100.0.
A less optimistic outlook for the labor market, as well as uncertainty and volatility in financial markets prompted by the situation in Greece and China sapped investor sentiment, the report said.
Other reports earlier Tuesday showed that U.S. house price growth stalled in May, while activity in the service sector picked up this month.
Investors were looking ahead to Wednesday’s Fed statement to see if policymakers would give any indication on the timing of an initial rate hike.
Fed Chair Janet Yellen has said the central bank could raise rates as soon as September if the economy continues to improve as expected.
The U.S. was to release figures on second quarter growth on Thursday, which were expected to show that the economy rebounded following a contraction in the first quarter following an unusually harsh winter.
Volatility in Chinese equity markets has roiled the Aussie, because of the country’s strong trade links to China.