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RBNZ Makes Surprise Interest Rate Cut, Kiwi Sinks

August 7, 2019 at 11:50 by Vladimir Vyun

Rolled bills on the plain banknotesThe Reserve Bank of New Zealand surprised markets today, cutting interest rates more than was expected. As a result, the New Zealand dollar sank against almost all of its most-traded rivals. While the currency has trimmed losses by now, it is still trading far below the opening level. Surprisingly, the kiwi managed to gain on the Great Britain pound, which remains under pressure from fears of a hard Brexit.

The RBNZ cut its main interest rate by 50 basis points to 1%. While market participants were counting on a cut, they were expecting a smaller reduction by 25 basis points. The central bank’s monetary policy statement revealed that policymakers were considering both options:

The members debated the relative benefits of reducing the OCR by 25 basis points and communicating an easing bias, versus reducing the OCR by 50 basis points now.

Ultimately, they agreed on a bigger cut:

They agreed that the larger initial monetary stimulus would best ensure the Committee continues to meet its inflation and employment objectives.

The RBNZ did not give a clear signal about its plans regarding monetary policy in the future. The general consensus is that if the central bank cuts rates further it will do so only once and the reduction will not be big.

Yesterday, Statistics New Zealand released employment data, which turned out to be better than analysts had expected. Employment rose by 0.8% in the June quarter from the previous three months versus the median projection of a 0.3% increase. The unemployment rate dropped from 4.2% to 3.9%, the lowest level in 11 years, instead of rising to 4.3% as analysts had predicted.

NZD/USD dropped from 0.6523 to 0.6433 as of 11:49 GMT today, touching the low of 0.6377 intraday. AUD/NZD jumped from 1.0357 to 1.0469. GBP/NZD declined from 1.8648 to 1.8591.

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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