RBNZ lowers rates by 50 bps, NZ Dollar gains ground

The New Zealand dollar has posted gains on Wednesday.  NZD/USD is trading at 0.5721 in the European session, up 0.31% on the day.

RBNZ chops rates by 50 bps as expected

The Reserve Bank of New Zealand slashed the cash rate by 50 basis points, bringing the cash rate to 3.75%.  The markets had priced in the cut at 90% so there was no surprise at the jumbo cut.  This lowered the cash rate to its lowest level since Nov. 2o22.  The RBNZ demonstrated again that it can be aggressive, as it has cut rates by 175 basis points since the easing cycle started last August.

The New Zealand dollar is stronger on Wednesday, which is somewhat surprising, given the jumbo rate cut and the RBNZ’s signal that further rate cuts are on the way in the coming months.

The rate statement noted that the members were confident lowering rates as CPI remained near the midpoint of the 1%-3% target band.  At the same time, members expressed concern that economic activity in New Zealand and abroad were “subdued” which posed a risk to economic growth.

The statement also made a brief mention of “trade restrictions” which could dampen economic growth.  No mention was made of US President Trump’s tariff threats but policymakers are clearly concerned that US tariffs, even if not aimed directly at New Zealand, could chill the global economy and hurt the country’s key export sector.

In a follow-up press conference, Governor Adrian Orr said that the Bank expected to lower the cash rate to 3% by the end of the year.  This forecast was lower than the November projection of 3.2% by year’s end.  The central bank is expected to deliver smaller rate cuts of 25-bps in the coming months.

NZD/USD technical

• NZD/USD is testing resistance at 0.5713.  Above, there is resistance at 0.5731.

• 0.5686 and 0.5668 and the next support levels.