The New Zealand dollar sank today after the Reserve Bank of New Zealand decided to cut its main interest rates. It was the second consecutive day of decline after victory of Republican candidate Donald Trump in the US presidential elections sent markets into disarray.
The RBNZ cut its Official Cash Rate by 25 basis points to 1.75%. Such decision was largely expected by market participants. The central bank complained in its statement about the strength of the currency:
The exchange rate remains higher than is sustainable for balanced economic growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed.
Otherwise, the statement was rather balanced, suggesting no further cuts in the immediate future, as the bank said:
Our current projections and assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range.
Nevertheless, the door for additional monetary accommodation remains open:
Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.
NZD/USD slumped 1.2% from 0.7275 to 0.7188 as of 15:26 GMT today, trading near the lowest level since November 1. EUR/NZD climbed 1.1% from 1.4973 to 1.5135. NZD/JPY slipped from 76.87 to 76.44.
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