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Shocking Loss for New Zealand Dollar After RBNZ Says a Rate Cut Most Likely

The New Zealand dollar plummeted on Wednesday after the RBNZ said its next move on interest rates was likely to be a cut.

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The New Zealand dollar suffered its second-worst loss of the year on Wednesday after the Reserve Bank of New Zealand suggested it might cut interest rates.

“Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down,” the RBNZ wrote in its statement.

At 1.75 percent, New Zealand’s official cash rate was left unchanged on Wednesday at what is already a record low.

The New Zealand dollar nosedived in the seconds following the release of the RBNZ statement, losing more than a cent against the US dollar on its way to $0.681, and then to a 2-½-week low of $0.679.

Losses were no less harsh against each of the other major currencies.

The RBNZ’s statement reflects a dovish trend among major central banks which are now seemingly competing to lower interest rate expectations.

Further to the US Federal Reserve, which itself surprised markets a week ago when it slashed two interest rate hikes from its 2019 projections, you have the European Central Bank, Reserve Bank of Australia and Bank of Japan all humming a dovish tune of late. There’s also the Swiss National Bank, which has reaffirmed its commitment to negative interest rates. The RBNZ is the first of this group, though, to say it might go beyond maintaining rates and recommence with policy easing.

Central banks have been forced to reassess their outlooks amid a slowdown in the global economy, with more evidence for that coming on Wednesday in the form of profitability data from China. For January and February, industrial firms in the world’s second-largest economy reported profits 14 percent lower that those in the same period last year—the largest year-on-year fall since 2011.

GBP to NZD - 1 Week chart to 27 Mar
GBP/NZD - 1 Week chart to 27 Mar

The kiwi’s collapse on Wednesday also dragged down the Australian dollar, to which it is highly correlated. AUD/USD weakened by six-tenths of a cent to $0.7075.

Both the New Zealand and Australian dollar currencies lost most value against the resurgent British pound.

With sterling emboldened by British MPs taking control of parliamentary affairs and proceeding with “indicative votes,” suggesting as that does that all roads now lead to a “benign Brexit,” the kiwi weakened by a hefty 4 NZ cents as GBP/NZD climbed above NZ$1.95 and moved within striking distance of a 4-month high. The Aussie weakened against the pound by 2 Australian cents to A$1.872.


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