The New Zealand dollar ended the week as the weakest among most-traded currencies. The major reason for the poor performance was a larger-than-expected interest rate cut by New Zealand’s central bank, but risk aversion also played a significant part.
The Reserve Bank of New Zealand surprised markets by cutting its main interest rate by 50 basis points instead of the expected 25 points. Furthermore, RBNZ policymakers signaled that additional cuts are possible.
The RBNZ was not the only bank that cut interest rates last week as central banks of India and Thailand joined the cycle of monetary easing. Additionally, market participants were concerned that the reduction of rates by New Zealand’s central bank will put pressure on the Reserve Bank of Australia to do the same. Indeed, RBA Governor Philip Lowe signaled that the central bank is prepared to lower borrowing costs if developments in inflation and employment warrant it.
As for the market sentiment, it was hurt by the escalating trade conflict between the United States and China. The sentiment deteriorated further after North Korea performed a weapon test on Saturday.
The Great Britain pound was the second weakest currency, weighed down by fears of hard Brexit. The unexpected contraction of gross domestic product did not help either.
NZD/USD dropped from 0.6521 to 0.6941 during the week. GBP/NZD was up from 1.8545 to 1.8599, though the currency pair retreated from the weekly maximum of 1.8752. AUD/NZD gained from 1.0397 to 1.0491, bouncing from the weekly low of 1.0261.
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