New Zealand Dollar Unexcited Following RBNZ Rate Cut

• RBNZ lowers Official Cash Rate (OCR) to 1.75% from 2.00%
• The additional stimulus boost was widely expected by markets
• Neutral RBNZ policy statement casts doubt on further easing

New Zealand Dollar failed to sustain gains after an initial surge against its US counterpart as the RBNZ delivered an expected rate cut with a neutral monetary statement. The Reserve Bank of New Zealand lowered the Official Cash Rate (OCR) from 2.00 to 1.75 percent, which had been widely expected. Typically, changes in the borrowing rate by central banks can cause enormous volatility for a currency, but today’s lackluster reaction hints that this rate cut may have already been priced in by the market.

The central focus for today’s announcement seemed to be more about policy statement from the Reserve Bank of New Zealand rather than the actual rate cut. Since this cut matched economists’ expectations, the market seemed to be looking for wording that gave any signal of future RBNZ policy moves. In today’s statement, the RBNZ has maintained that monetary policy will continue to be accommodative, but may need to be adjusted as new situations transpire. This fairly neutral bias and reaction from the market hints that expectations for further easing have declined, at least for the near term.

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