fundamental alert

New Zealand Dollar Holds Up Despite the RBNZs Aggressive 150bp Rate Cut

Wednesday, 03 December 2008 23:11:14 GMT  |  Terri Belkas, Currency Strategist

Like the Australian dollar on Monday, the New Zealand dollar edged lower, but subsequently rebounded despite the fact the Reserve Bank of New Zealand slashed rates by 150bps to a five-year low of 5.00 percent.

This is the fourth time the RBNZ has cut rates in so many meetings, and each has been more aggressive than the last. After the announcement, RBNZ Governor Alan Bollard said in a statement that the sharp reduction was necessary as the economies of New Zealand’s trading partners were expected to “contract or grow only very slowly over the next few quarters.” While Mr. Bollard left the door open for further rate cuts, he also said that “domestically generated inflation” remains “stubbornly high,” and that monetary policy is in an “expansionary position.” That said, NZD/USD remains contained within a tight range of 0.5260-0.5340, and if risk appetite continues to improve, the pair could easily rally above the top of the range.

Related Article: RBNZ Cuts Its Benchmark 150bps In Line With Expectations

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