The Reserve Bank of New Zealand did not wait or send any additional signals but just the the interest rate from 3.50% to 3.25%. This is the first rate cut in a long time. The cut reverses the hike seen in July 2014. Since then, the RBNZ has been on hold, but they did shift their bias from hawkish to neutral.
This was not priced in, at least not fully. The pair tumbled quickly and momentarily fell below the very round 0.70 level.
While at the time of writing it trades around 0.7040, the move extended 200 pips within second.
The RBNZ also said that further cuts could be appropriate. The Bank, led by Governor Wheeler also referred directly to the currency. Despite all the recent weakness, they say that it is still overvalued and that it should fall further.
Among the other assessments are that we could see a delay in inflation reaching its midpoint. The Bank sees CPI standing at 0.7% in 2015. GDP forecasts were lowered.
Weak dairy prices and other weak demand weigh on the forecasts.
In his post rate decision press conference, Wheeler does say he is pleased the NZD has come down but adds that the NZD still has a “significant” way to fall. The levels are “unjustifiable” and unsustainable. A fall would help dairy farmers.
More: NZD Downtrend Intact; We Stay Short – ANZ
Here is how the crash looks on the chart:
Share
