The Reserve Bank of New Zealand cut the interest rate for the third time to 2.75%. That was widely expected, but the dovish statement was not really foreseen by markets.
NZD/USD erased its recovery and fell below 0.63 once again. Can it reach new multi-year lows?
Graeme Wheeler and his colleagues cited the softening in the economy and inflation worries as the reason for the monetary easing. And it’s not the end of this easing: the Bank stated that more cuts are likely.
Lower commodity prices mean a lower trajectory for growth and a fall in both business and consumer confidence.
Perhaps more importantly for the kiwi, the direct mention of the exchange rate was powerful: the depreciation, which was quite significant so far, is seen as “appropriate” and so does further depreciation.
The next meeting in October could certainly see another cut and in-between we could surely hear Wheeler talking down the NZD.
The kiwi dropped around 140 in the wake of the powerful statement and hit a low of 0.6255. This is still above levels seen earlier, the multi-year lows of 0.6243, but not too far.
Since then, the currency managed to recover and recaptured the 0.63 level. However, the post-crash party may be over.
The kiwi is now the weaker link among commodity currencies: Canada’s central bank was upbeat and Australia enjoyed good employment numbers. This is so different from dynamics seen earlier in the year.
Here is the chart: