WELLINGTON: New Zealand–The Kiwi dollar hit a near five-year low against the greenback Thursday after the central bank took markets by surprise and lowered interest rates.
While most economists agreed the cut was a possibility, only six of 16 were banking on it and 0.25 percentage point of easing was only 40% priced in ahead of the decision. As a result, the Kiwi fell to US$0.7016 from US$0.7200 on the news, its lowest level since the third quarter of 2010. It fell to A$0.9036 from A$0.9279, rendering prospects of parity a very dim memory.
Before Thursday’s rate decision, the net short position in the New Zealand dollar against the greenback reached a record high on an increasing prospect of a rate cut. The Kiwi, however, took a nose dive on the news “because not only did they cut rates, but they came out with a very bearish statement and their forecasts include one more rate cut,” said Wellington-based OM Financial client adviser Stuart Ive.
The New Zealand dollar was already under pressure, falling more than 9% against the U.S. dollar since late April, when the central bank signaled a willingness to cut the rates. In late April, the Kiwi was within a whisker of reaching parity with the Australian dollar, a point of pride for the smaller nation.
