The Reserve Bank of New Zealand delivered an interest rate cut today, surprising basically no-one. Yet the New Zealand dollar reacted to the news in a very unexpected manner, surging after the event. While the currency has trimmed its gains as of now, it is still trading far above the opening level.
The RBNZ reduced its key Official Cash Rate by 25 basis points to 2% at today’s policy meeting. Such decision was expected by the vast majority of market participants. Furthermore, the central bank hinted at possibility of additional monetary easing in the future:
Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.
Usually, when a central bank adds monetary accommodation, it drives the corresponding currency lower. Yet this time. it was not the case as the kiwi soared after the rate cut. Some analysts speculated that the reason for this is the fact that the cut was expected and priced in, encouraging short-sellers to employ the tactic “sell the rumor, buy the fact.”
NZD/USD was up from 0.7198 to 0.7259 as of 14:52 GMT today after touching 0.7338 intraday — the highest rate since May 2015. NZD/JPY traded at 73.49 following the rally from 72.96 to 74.24. EUR/NZD was down from 1.5490 to 1.5383 while its daily low was at 1.5211.
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