New Zealand dollar bounces as RBNZ cuts rates, but no rush to neutral

SYDNEY: The New Zealand dollar bounced on Wednesday after the country’s central bank delivered another outsized rate cut, but signalled further moves would be smaller in size and the end of the easing cycle was now not too distant.

The Reserve Bank of New Zealand slashed the official cash rate (OCR) by half a point to 3.75%, bringing its easing in the past six months to a thumping 175 basis points.

Markets had long priced in the move and sold the kiwi beforehand.

RBNZ Governor Adrian Orr suggested further cuts of 25 basis points could come in April and May which would leave rates in a neutral range, with 3.0% as a neutral longer-term floor.

Importantly, he said there was no need to “rush” to neutral, and showed no inclination to go below neutral as some analysts had speculated.

That led to classic sell on the rumour buy on the fact reaction, with the kiwi dollar rallying to $0.5715 from an initial $0.5675 low.

Markets were priced for easings in April and July, and a terminal rate between 3.0% and 3.25%.

“We continue to expect the RBNZ to slow the pace of cuts to 25bps per meeting to reach a terminal rate of 3.0%,” said Andrew Boak, an economist at Goldman Sachs.

“That said, we see risks skewed to larger/deeper cuts if ‘hard’ data do not start to show signs of improvement, including upcoming data on GDP growth ahead of the RBNZ’s next meeting.”

The data on gross domestic product are out on March 20, while the RBNZ meets on April 8.

The central bank is forecasting a return to growth of 0.3% in the quarter, following a shockingly sharp fall of 1.0% in the third quarter.

The Reserve Bank of Australia only delivered its first quarter-point cut on Tuesday, while cautioning that further easing was not guaranteed.

Australia, NZ dollars near month highs as RBA, RBNZ meetings loom

The hawkish outlook kept the Aussie steady at $0.6356 , having hardly budged on the rate cut. Resistance lies at $0.6374 and the 100-day moving average at $0.6417.

Markets see scope for only one or two more easings, with rates implied around 3.70% by year-end compared to 3.60% at the start of the week.

Data out on Wednesday showed wages were not an impediment to further cuts as annual growth slowed to 3.2% in the December quarter, down from a peak of 4.2% a year earlier.