NZD/USD drops 50 pips on RBNZ's rate cut hint

Reserve Bank of New Zealand (RBNZ) said that an increase in bank capital requirement could lead to an interest rate cut.
NZD/USD has dropped 50 pips in response to RBNZ's rate cut hint. The yield differentials, however, have barely moved.

Omkar Godbole FXStreet Contributor

The NZD/USD pair fell 50 pips to a session low of 0.6757 a few minutes before press time, possibly due to RBNZ's rate cut hint.

RBNZ's Deputy Governor Geoff Bascand was out on the wires 15 minutes ago stating that the central bank is planning to hike capital requirements for the bank and the resulting tightening of financial conditions could be countered with the help of an interest rate cut.

As a result, NZD/USD fell from 0.6807 to 0.6757 and is now trading at 0.6777 - down 0.32 percent on the day.

So far, however, Bascand's comments have not had any impact on the yield differentials. The spread between the 10-year New Zealand and US government bond yield is currently seen at -0.44 basis points vs the previous day's low of 0.46 basis points.

The resilient yield spread could help the NZD recover losses, although the odds of rate cuts in the major Oceania nation are rising. Hence, the spread is likely to drop in the NZD-negative manner.

NZD/USD Technical Levels

1. R3 0.6942
2. R2 0.691
3. R1 0.6861
PP 0.6829
1. S1 0.678
2. S2 0.6748
3. S3 0.6699

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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