Kiwi takes flight as NZ central bank cuts rates

It rose in response to today’s rate cut, a likely reaction to some expectations that the Reserve Bank would cut by 50 basis points.

The kiwi has been depreciating against the USA dollar since hitting a high of 1.13 in July 2014.

While the currency depreciation would provide support to the export and import competing sectors, further depreciation was necessary given the weakness in export commodity prices, he said.

Government data last week showed New Zealand’s consumers price index rose at an annual pace of 0.3 percent, and Wheeler said the headline rate was tracking below the bank’s 1 percent to 3 percent target band “due largely to previous strength in the New Zealand dollar and a large decline in world oil prices”.

“The currency comment was significantly altered when the word “unjustified” was dropped completely”, Tuck said.

New Zealand interest rates were cut for the second time in as many months on Thursday, as sharp falls in dairy prices and waning building activity in earthquake-struck Canterbury has eroded the economic outlook, while the recent weakening in the New Zealand dollar is expected to support growth going forward.

The New Zealand dollar lifted slightly following the announcement, with the kiwi trading at A89.63c from A89.2c before the announcement and US66.14c from US65.79c.

“The RBNZ delivered a 25 basis point rate cut, although disappointed those positioned for a “surprise” more aggressive 50 basis point cut”, said Annette Beacher, chief Asia-Pac macro strategist at TD Securities in Singapore. The Bank of Canada recently cut its main interest rate to 0.5 per cent, citing a deeper-than-expected impact of the decline in oil prices.

Reserve Bank Governor Graeme Wheeler is due to announce whether or not the Reserve Bank will change the Official Cash Rate on Thursday.

He also said the bank’s growth outlook had deteriorated from its last policy statement in June as the construction activity to rebuild Christchurch after its 2011 quake “appears to have peaked”.

“The whole statement was a little bit less dovish than the market had expected”, Sam Tuck, senior foreign exchange strategist at ANZ Bank, said.

“In the short term lower interest rates would tend to put upward pressure on prices – particularly in Auckland, and perhaps also in regions where recent feedback suggests there has been some involvement from Auckland-based investors”, Ms Milne said.

In Auckland, home to a third of New Zealand’s population, prices jumped 17 percent in June from a year earlier.

However, there was disagreement on how far the central bank would go in the current easing cycle, with estimates ranging from 2.75 per cent – after one more cut – to 2 per cent, the same record low level of Australia’s cash rate. At the time, he told politicians he was watching a number of indicators including inflation signals, commodity prices and the falling currency in gauging whether to cut interest rates again.

While a weaker exchange rate may lure more tourists to New Zealand and boost export returns, the price of dairy products, the nation’s biggest export earner, has slumped to a 12-year low.