The Reserve Bank of New Zealand rocked markets today, demonstrating a clearly dovish bias. Unsurprisingly, the New Zealand dollar did not take it well, posting a huge decline against all other most-traded currencies.
The RBNZ left its main interest rate at 1.75%, as was widely expected. What was not expected by many market participants was a clearly dovish stance of the central bank. Just recently, the RBNZ turned from slightly hawkish to neutral, saying that chances are about equal for the next move in rates to be either up or down. Yet now the bank made an outright dovish statement, saying:
Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down.
Furthermore, instead mentioning both upside and downside risks, the central bank said:
The balance of risks to this outlook has shifted to the downside.
Some analysts were very surprised by the announcement, while others said that it was expected. Many argued that the change of stance was not a result of the domestic economy performing badly (though the statement mentioned that domestic growth slowed in 2018), but rather an attempt to follow example of many other central banks of developed nations that became either less hawkish or outright dovish. Whatever the case, now market participants price in an interest rate cut in November, though some betting on a cut as early as May.
NZD/USD sank from 0.6901 to 0.6804 as of 10:48 GMT today. EUR/NZD surged from 1.6320 to 1.6573. NZD/JPY tumbled from 76.35 to 75.13.
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