NZ DOLLAR CRASHES

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Kiwi Craters After RBNZ Surprises Traders WIth 50bps Rate-Cut

The New Zealand Dollar is tumbling following a surprise 50bps rate-cut by RBNZ (economists had forecast 25bps) to 1.00%, citing downside risks on inflation and jobs.

Zero Hedge,

6 August, 2019

Mimiccing The Fed's apparent lack of data-dependence, this surprise rate-cut followed a strong 3.9% unemployment print; and just like The Fed, RBNZ is clear that global trade issues are an important factor:

"Heightened uncertainty and declining international trade have contributed to lower trading-partner growth."

Some key quotes from the statement here:

“GDP growth has slowed over the past year and growth headwinds are rising,” the central bank said in a statement.

“In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets.”

“Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level.”

Kiwi has plunged...

Near its weakest level against the dollar since Jan 2015...

And 10Y Kiwi note yields plunged 17bps to a record low 1.128%!

Clearly the central bank is trying to get ahead of the curve of global easing and as Bloomberg's Garfield Reynolds notes, RBNZ obviously decided they didn't dare risk any sort of bounce in the kiwi if they followed the Fed's playbook and made a so-called hawkish cut. The currency had ticked up into the decision to offer the board a warning about the perils of insufficient action.

Here's the take from Kyle Rodda, analyst at IG Markets in Melbourne.

“This was not what the market was expecting at all, it’s a shock to many. Considering the data isn’t terrible for New Zealand at all, this is an example of a central bank that’s looking beyond current data and trying to get ahead of the global slowdown.”

They also secured themselves a weaker currency even if the Fed finds itself pushed toward further rate cuts.

Additionally, this brings RBNZ's policy rate in line with RBA's rate...

Read the full RBNZ statement here...

This I do NOT

Reserve Bank cuts Official Cash Rate by 0.5 percent to sit at 1 percent

Radio NZ,

7 August, 2019

The Reserve Bank (RBNZ) has slashed its benchmark interest rate by a greater than expected half a percent in the face of significant headwinds at home and abroad, sending the New Zealand dollar plunging.

Reserve Bank governor Adrian Orr Photo: RNZ / Dom Thomas

The official cash rate (OCR) was reduced to a record low 1 percent, when forecasters had been expecting a lesser quarter percent cut..

RBNZ Governor Adrian Orr said the risks have risen and the economy needed more stimulus to help counter the weaker outlook.

"In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets."

The RBNZ held the rate steady in June after cutting by a quarter of a percentage point in May - its first move in more than two years.

The last time the RBNZ cut by such an amount was in March 2011 after the Canterbury earthquakes.

But Mr Orr said recent solid growth and employment numbers were positive, but the worsening international outlook was hurting New Zealand.

"Global economic activity continues to weaken, easing demand for New Zealand's goods and services. Heightened uncertainty and declining international trade have contributed to lower trading-partner growth."

Economy should improve

Mr Orr said low interest rates and increased government spending were expected to lift the economy over the coming year. Inflation was expected to reach its 2 percent target and employment should remain strong, which are the RBNZ's overriding policy objectives.

Interest rate decisions are now made by a committee of four RBNZ staff and three outside members.

A summary of the committee's deliberations showed discussion about the effect of increased government spending, soft wage growth, and a slowing housing market dampening consumer spending.

"They agreed that the larger initial monetary stimulus would best ensure the Committee continues to meet its inflation and employment objectives," the statement said.

Neither the statement nor the RBNZ's forward projections pointed to another rate cut, and suggested the OCR might be held at current levels through to 2022.

The New Zealand dollar slumped a full cent against the US after the decision, as investors were caught by surprise by the size of the cut. The Kiwi settled at around 64.4 US cents.

ASB Bank was quick to respond to the hefty cut, by reducing its floating mortgage rate by half-a-percent, but it trimmed its short term fixed rate by only a small amount.

An economist said the RBNZ had clearly decided to 'front-load' the support for the economy, and its commentary still had an easing bias.

"We forecast a further 25 basis point (quarter-percent) cut in November, but timing will be heavily influenced by global risks, which are fluid at present," ASB chief economist Nick Tuffley said.