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NZ dollar falls after RBA cuts its cash rate

Tuesday 4th June 2019

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The New Zealand made up lost ground from earlier in the day after the Reserve Bank of Australia cut its cash rate, a move that had already been fully priced into the market, but then the kiwi fell again.

The kiwi was trading at 65.76 US cents at 5pm in Wellington, down from 65.93 immediately after the RBA’s announcement, from 65.98 at 7:45am and at 94.40 Australian cents from 94.54. The trade-weighted index was at 72.26 points from 72.40.

The RBA cut its cash rate from 1.5 percent to 1.25 percent.

“Today’s decision to lower the cash rate will help make further inroads into the spare capacity in the economy. It will assist with faster progress in reducing unemployment and achieve more assured progress towards the inflation target,” RBA governor Philip Lowe said in a statement announcing the cut.

He noted that Australia’s unemployment rate had been steady at about 5 percent for some months but had ticked up to 5.2 percent in April.

Peter Cavanaugh, the senior client advisor at Bancorp Treasury Services, described it as “a hawkish cut,” and the market pushed the Australian dollar higher as a result and the kiwi was dragged along for the ride.

“Notwithstanding the cut, the language implies they’re reluctant to move without appropriate developments in the labour market,” Cavanaugh says.

“That is not the language of a central bank ready to cut more,” he says.

The local currency then sold off again. “You can read into the RBA statement whatever you want, but the Australian dollar did not go down.

“I think there’s a lot of debate about what will happen. ANZ Bank cut its floating mortgage rate 18 points rather than passing on the full 25 point cut, so maybe the RBA needs to try harder.”

The domestic currency had earlier been drifting lower after a big jump overnight after James Bullard, head of the St Louis Federal Reserve said lower US interest rates may be “warranted soon" given rising trade tensions and weak US inflation.

That had prompted the US dollar to weaken against other currencies, including to a five-month low against the yen.

The New Zealand dollar was at 51.93 British pence from 52.06, at 58.50 euro cents from 58.64, at 71.01 yen from 71.24 and at 4.5437 Chinese yuan from 4.5538. 

The New Zealand two-year swap rate edged down to 1.4081 percent from 1.4364 on Friday while the 10-year swap rate fell to 1.8950 percent from 1.9125.


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