The Kiwi suffered heavy losses during trading yesterday as a consequence to the Reserve Bank of New Zealand (RBNZ) confirming a policy change bigger than anticipated, seeing them cutting interest rates by 50 basis points. New Zealand’s base rate now sits at its lowest ever level at just 1%.

The interest rate change saw the NZD fall to its weakest against the USD since January 2009. The pound also saw gains versus the Kiwi by 2% at one point yesterday, reaching its best levels in 6 weeks. Lloyds bank commented that they expect the NZD to remain under pressure over the coming sessions.

Mario Draghi words inspire Governor Orr

Mario Draghi words inspire Governor Orr

Usually by time a central bank actually gets around to reducing or hiking Interest rates, it comes as little surprise to the market and may have been partially priced in ahead of the actual confirmation. Commentary from policy members at the bank and economic data leading up to the event can give the market an idea of what could be expected in the way of policy changes at up coming central bank meetings. However, yesterday’s move by the RBNZ was not expected with economic data from NZ seen as reasonable, Q1 GDP growth printed at 2.5%, Unemployment recently fell to 3.9% and the latest inflation number showing at 1.7%.  Arguably these are economic figures that historically at least would not warrant such aggressive policy easing. 

However RBNZ Governor Adrian Orr cited global headwinds as a key risk and went on to echo words used by ECB President Mario Draghi in the midst of the European Debt Crisis ‘That the bank stood ready to use whatever tools necessary in order to achieve its targets,’ potentially raising the chances of negative rates. As result interest rates markets may have  now ‘fully’ priced in another reduction by Feb 2020 cited by Lloyds Bank.

At a time when there is so much uncertainty surrounding the UK with Brexit resulting in volatility in sterling’s value across the board.  You may wish to get in touch with your account manager today to get the latest prices on the New Zealand Dollar for your next transfer.

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