New Zealand Dollar Hammered on RBNZ Rate Cut

The Reserve Bank of New Zealand has cut interest rates and the NZ dollar has fallen like a rock.

The RBNZ wants a weaker exchange rate and that is just what it is getting on Thursday the 11th of June.

The pound sterling has joined other currencies and surged against the New Zealand dollar in the wake of a RBNZ interest rate cut - we are seeing losses of 2% being quite common right across the board.

The RBNZ cut the base rate by 25 basis points to 3.25% from 3.5% whittling down the country’s yield advantage, global investors will speed up the repatriation of funds that were domiciled in New Zealand to take advantage of superior rates.

The June MPS was the most eagerly awaited RBNZ event in years and market pricing and the analyst community were split on whether the RBNZ would actually cut the OCR today and the extent to which further easing will be signalled.

“The fall in export commodity prices that began in mid-2014 is proving more pronounced. The weaker prospects for dairy prices and the recent rises in petrol prices will slow income and demand growth and increase the risk that the return of inflation to the mid-point would be delayed,” said the RBNZ justifying the decision in an accompanying statement.

The damage to the currency is broad-based:

• At the time of writing the pound to New Zealand dollar exchange rate (GBPNZD) is up a further 0.44% on a day-on-day basis at 2.2220. High street lenders are offering GBP-NZD at 2.1596 while independent specialists are coming in closer to the market at around 2.1951 - get in touch to lock in these levels.
• The euro to NZ dollar exchange rate (EURNZD) is up by a similar percentage to 1.6079.
• The New Zealand to US dollar rate (USDNZD) is 2.56 pct lower at 0.7017.
• The Australian to New Zealand dollar exchange rate (AUDNZD) is 2.53 pct higher at 1.1047.

The move lower in the NZ dollar will come as a relief to the RBNZ who are keen on seeing the exchange rate fall in order to further support the domestic economy.

“With the fall in commodity prices and the expected weakening in demand, the exchange rate has declined from its recent peak in April, but remains overvalued,” says the statement.

Indeed, “a further significant downward adjustment is justified.”

If the NZD does not play ball and fall yet further then expect another swift cut in July as the RBNZ hammers home to markets that they are serious in pursuing a softer exchange rate.

"Today's announcement is significant for NZD because it marks the beginning of what could turn into a more prolonged easing cycle and desynchronization of monetary should not only drive NZD/USD below 70 cents but take it lower against many other major currencies," comments Kathy Lien, a professional trader at BK Asset Management.