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NZ Dollar Licks Wounds After RBNZ Cuts Interest Rates

May 8, 2019 at 15:59 by Vladimir Vyun

Rolled bills on the plain banknotesThe New Zealand dollar sank today after the Reserve Bank of New Zealand cut interest rates. By now, the currency managed to erase a big chunk of losses, though it is still trading below the opening level.

Ahead of the central bank’s decision, analysts were divided whether it would cut rates at this meeting or later. It turned out that the RBNZ decided to act now, slashing its main interest rate by 25 basis points to 1.5% — the first interest rate cut since November 2016. The statement revealed that there were worries about inflation:

Some members noted slower global growth reducing imported inflation was a downside risk to the inflation outlook.

Ultimately though, the statement concluded:

It was agreed that inflation expectations remain well anchored at the mid-point of the target range.

Indeed, data released by the RBNZ yesterday showed that inflation expectations over the next two years remained at 2% for the June quarter, the same as in the March quarter.

Released separately, GlobalDairyTrade Price Index rose 0.4% after increasing 0.5% in the previous reporting period. That is a good sign for the New Zealand economy, which heavily depends on exports of dairy products.

NZD/USD was down from 0.6598 to 0.6524, the lowest level since November 2018, before bouncing to 0.6588 by 15:44 GMT today. EUR/NZD opened at 1.6954, jumped to 1.7149, but backed off to 1.7009 later. NZD/JPY traded at 72.52 after opening at 72.73 and falling to the daily low of 71.83.

If you have any questions, comments, or opinions regarding the New Zealand Dollar, feel free to post them using the commentary form below.

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