NZ Dollar Falls As RBNZ Cuts Rate Unexpectedly, Flags Further Rate Reduction
08 May 2019 - 1:31PM
RTTF2
The New Zealand dollar nose-dived against its major opponents in
the Asian session on Wednesday, after the Reserve Bank of New
Zealand unexpectedly cut its official cash rate to a record low and
suggested the possibility for further cuts citing uncertain global
economic outlook and weak inflation.
The Monetary Policy Committee, chaired by Governor Adrian Orr,
unanimously decided to reduce the OCR by 25 basis points to 1.5
percent from 1.75 percent.
Economists had expected the benchmark rate to remain at 1.75
percent, where it had been since November 2016.
Although employment is near its maximum sustainable level, the
outlook for employment growth is more subdued and capacity pressure
is expected to ease slightly in 2019. Consequently, inflationary
pressure is expected to rise only slowly.
"Given this employment and inflation outlook, a lower OCR now is
most consistent with achieving our objectives and provides a more
balanced outlook for interest rates," according to the accompanying
statement.
The RBNZ's projections signaled the possibility for another rate
cut by March 2020. The latest forecasts show OCR falling to 1.4
percent in March 2020, compared to prior forecast of 1.8
percent.
Risk sentiment further dampened on worries about escalating
U.S.-China trade tensions. U.S. Trade Representative Robert
Lighthizer confirmed that the U.S. plans to raise tariffs on $200
billion worth of Chinese goods to 25 percent on Friday.
The NZ dollar declined to 0.6525 against the greenback, a level
unseen since October 29, 2018. The pair was valued at 0.6601 at
yesterday's close. On the downside, 0.64 is seen as the next
support level for the kiwi.
The NZ dollar fell to 71.83 against the yen, its lowest since
January 3. The pair was valued at 72.77 when it ended deals on
Tuesday. Continuation of the kiwi's downtrend may see it
challenging support around the 70.00 mark.
The kiwi lost 1.2 percent to a 4-month low of 1.7150 against the
euro from yesterday's closing value of 1.6945. The kiwi is poised
to find support around the 1.72 level.
The kiwi that closed yesterday's trading at 1.0617 against the
aussie tumbled 1 percent to a 3-week low of 1.0723. The kiwi is
likely to test support around the 1.09 region.
Looking ahead, at 8:15 am ET, Canada housing starts for April
are due.
At 8:30 am ET, Federal Reserve Governor Lael Brainard will
deliver a speech at a Community Listening Session hosted by the
Federal Reserve Bank of Richmond.
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