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New Zealand dollar tumbles as central bank says next move will be a cut

The New Zealand dollar took a dive and Markets were blindsided after the central bank said the next move would likely being down.

The Reserve Bank of New Zealand (RBNZ) chose to keep the official cash rate at 1.75% on Wednesday, which was a widely expected move.

However, what markets didn’t see coming from the RBNZ, were comments about the next move in interest rates, saying the next move would be down.

The unpredictable comments were made after the RBNZ’s long-standing neutral stance, which in turn pushed the kiwi and Aussie dollar down.

New Zealand dollar price

The kiwi dollar dived 1.3 % in response to the comments, marking a two-week low at $0.6819, at time of writing on Wednesday.

While bond and bill futures rallied sharply, taking yields to new lows.

The Australian dollar also took a tumble, dragged down by the kiwi, falling 0.3% to $0.7115 on Wednesday.

New Zealand Reserve Bank’s next move

RBNZ surprised analysts with their comments saying, ‘the more likely direction of our next OCR move is down.’ They cited a weaker global outlook, particularly in major trading partners including Australia.

‘This weaker outlook has prompted central banks to ease their expected monetary policy stances, placing upward pressure on the New Zealand dollar,’ the RBNZ said.

Slower growth in consumption and persistently low inflation also added to the downside risks. Bill futures also shot higher as investors priced in at least one quarter-point cut in rates.

Analysts say the dovish shift also adds to speculation that the Reserve Bank of Australia (RBA) will have to ease policy at some point.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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