Historical revisionism on July OCR

So because the dollar has eased back following the OCR people have decided that the statement was dovish (ahh the Herald did this too).

Fact, no it wasn’t – it was a more hawkish than expected statement.  Probabilities of rate increases did rise following the statement.

Remember something here, the link between the exchange rate and the OCR IS NOT as clear as people act like it is.  Money doesn’t “flow in” to take advantage of “higher interest rates” when the RBNZ increases the OCR – as so much depends on the “demand” for said overseas loans.  Please god, lets remember that someone in NZ actually has to borrow the overseas money for a loan to be made – its doesn’t just wash up on our shores in a bottle and start aggressively lifting our currency through black magic.  Oft times the currency does get pushed up (especially pre-core funding ratio), but in of itself it will not always happen.

Hell, explaining daily movements in the currency is a mugs game (explaining movements in the currency generally is bad enough).  However, the fact that people put it down to a dovish OCR statement illustrates to me that people are putting TOO MUCH weight on how the RBNZ effects economic variables that aren’t inflation – something which concerns me greatly.