New Zealand Dollar Plummets as RBNZ Cuts Rates to 2.50%, Signals Low Rates Through Late 2010

The New Zealand dollar plunged across the majors at 21:00 ET on Wednesday after the Reserve Bank of New Zealand cut their official cash rate target by 50 basis points to 2.50 percent, as the "world economy deteriorated more than expected" during Q1.

The reduction was in line with forecasts published by Bloomberg News, but differed from what Credit Suisse overnight index swaps were pricing in, as they only fully reflected a 25 basis point cut. Looking to the RBNZ Governor Alan Bollard’s policy statement, it is clear that the central bank has cut back their inflation expectations due to weaker global growth and tight financial conditions. Furthermore, the RBNZ anticipated that the “adverse economic forces generated by the crisis to remain dominant throughout 2009,” with the “timing and extent of recovery” remaining “highly uncertain.” While all of this was negative for the New Zealand dollar, NZD/USD was able to break below 0.5700 on comments that the RBNZ expected to leave the OCR at or below current levels through the end of 2010. This leaves additional downside risks for the New Zealand dollar, especially if risk aversion remains a lingering issue.


Source: FXTrek Intellicharts