New Zealand cuts rates for third time

The main event during Thursday’s Asian session was the Reserve Bank of New Zealand’s policy meeting and rate decision. The central bank cut interest rates for the third time this year by 25 basis points to 2.75 percent, as widely expected, and signalled more easing if economic growth continued to slow.

The New Zealand dollar plunged after the RBNZ announced it cut its main cash rate and hinted at further monetary easing.

NZD/USD fell around 2 percent to $0.6278, nearing a six-year low below 62 cents. Against the yen the kiwi dropped 2.3 percent to 75.16 yen, while the euro surged 4 cents higher to NZ$1.7882.

The central bank acknowledged that a sharp depreciation in the New Zealand dollar in past months was providing some support to the economy, and forecast the kiwi would fall an additional 5 percent on a trade-weighted basis over the next year.

Further losses in the kiwi were limited by demand from regional exporters below $0.6300. The longer-term outlook is lower, with some forecasting $0.6000 before the end of the year.

New Zealand interest rate futures and government bonds rallied, with government bond yields sliding as much as 6 basis points at the front end of the curve.

The Australian dollar was affected too and it fell 0.3 percent lower versus the US dollar to $0.6979, having gone as deep as $0.6947 at one point. It managed to trim losses after a better-than-expected jobs report at home supported the case for a steady policy outlook.

Australian employment jumped 17,400 in August, almost three times market forecasts, while the jobless rate eased to 6.2 percent.

Debt futures were little changed, having recently widened the odds for further cuts by the Reserve Bank of Australia (RBA). Interbank futures 0#YIB: give an around 50-50 percent chance of a move by December, while the majority of economists see a steady rate outlook through 2016.

Still, the Aussie outlook points to further decline as the U.S. Federal Reserve is expected to raise interest rates as early as next week, an event which will likely set a fire under the U.S. dollar.

The post New Zealand cuts rates for third time appeared first on Forex Circles.

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