New Zealand reduces interest rate to 7.50%. NZ Dollar falls in currency trading. | CountingPips Forex Blog

September 10, 2008 - Forex Economic News

New Zealand reduces interest rate to 7.50%. NZ Dollar falls in currency trading.

The Reserve Bank of New Zealand announced today that it had reduced the NZ official cash rate by 50 basis points to 7.50 percent. This follows July's rate reduction of 25 basis points to 8.00 percent and surpassed market predictions. The July RBNZ statement forecasted more rate cuts to come as economic growth slows, business confidence erodes and as inflation is starting to moderate. The statment said, "Provided that the outlook for inflation continues to improve and there is New Zealand Dollar falls in currency trading. no excessive exchange rate depreciation, we would expect to lower the OCR further." Today's rate cut of 50 basis points surpassed market forecasts that were expecting only a 25 basis point reduction and spurred the New Zealand dollar to spike lower verses the other currencies after the announcement.

The Reserve Bank's Governor Alan Bollard explained the decision for the rate cut in today's statement by saying, "The New Zealand economy is experiencing a marked slowdown, led primarily by the household sector. The outlook for the global economy has deteriorated further in the wake of continued financial market turmoil. In addition, the New Zealand business sector is coming under pressure from both rising costs and falling demand. While domestic activity is likely to pick up late this year as a result of personal tax cuts, increased government spending and rising rural incomes, we expect a prolonged period of household sector adjustment and below-average growth."The RBNZ also stated that inflation risks still remain high but are expected to "expected to peak around 5 percent in the current September quarter before trending down thereafter."

The New Zealand "kiwi" dollar dropped against the U.S. dollar in currency trading immediately after the rate announcement from approximately 0.6657 dollars per kiwi to approximately 0.6538. The NZD/USD pair has lost ground from today's open of 0.6692 and has fallen for two consecutive weekly closes. The Australian dollar also spiked higher against its pacific currency counterpart after the rate announcement. The AUD/NZD jumped from approximately 1.0263 kiwi per aussie dollars to 1.2202 at 5:42 pm ET.

NZD/USD Chart - The New Zealand dollar spiking lower vs. the U.S. dollar today in forex trading after the interest rate announcement surpassed forecasts(30 min Chart).

Forex Chart

Chart by Oanda FXTrade

tags: nzd, interest rate, currency trading, rbnz

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