Reserve Bank of New Zealand lowers rate to 3 percent

The New Zealand dollar jumped to a one-week high on Thursday after the Reserve Bank of New Zealand (RBNZ) delivered a smaller interest rate cut than some had wagered on, while the Australian dollar was pressured by weakness in commodity prices.

The kiwi climbed more than half a U.S. cent to a peak of $0.6654, after the central bank cut its cash rate by 25 basis points to 3.0 percent in response to a dimmer economic outlook and lower inflation. The 25 basis-point cut disappointed those positioned for a ‘surprise’ more aggressive 50 basis point cut. Hence, they bought back the kiwi.

The kiwi rallied against the Aussie, which fell to NZ$1.1130 and gained nearly 1 percent on the yen.

It was last at $0.6617, up 0.7 percent on the day and moving away from a six-year low of $0.6498 touched last week.
Resistance was seen above $0.6650, while offers were suspected around $0.6700.

Some analysts, however, predict the bounce is temporary with more rate cuts seen on the horizon.

“The currency will definitely go lower over time but it’s just that the market’s got some extremely massive speculative positions in it and the risk is that they get cleared out somewhat before we go lower again,” said Tim Kelleher, head of institutional FX sales at ASB bank in Auckland.

Markets are pricing in roughly two more rate cuts in New Zealand in the next 12 months, which could push the kiwi down to around $0.6200 in coming months.

Longer-dated New Zealand government bonds rose, pushing the yield on 2027 debt 2 basis points lower. Yields on short-dated notes rose as much as 2.5 basis points as the curve flattened a touch.

In contrast, the Australian dollar was nursing losses at $0.7367, having retreated from a peak of $0.7440 on Wednesday as upbeat U.S. economic data reinforced expectations of higher rates from the Federal Reserve.

The Aussie was pulling closer to a six-year through of $0.7328 touched last week, with immediate support found at $0.7360. Weighing was ongoing weakness in commodity prices with iron ore, Australia’s top export earner, slipping nearly 3 percent.

The Aussie derived no comfort in an encouraging corporate survey which found that Australian businesses were in a better mood last quarter, while confidence had turned positive for all sectors outside mining.

The Aussie remained near its lowest since 2009 against the pound which rose to A$2.1167 on rising speculation of higher interest rates from the Bank of England.
Australian government bond futures rose, with the three-year bond contract up 1 tick at 98.020. The 10-year contract added 4 ticks to 97.100, leading to a bullish flattening of the curve.

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