Heading into the mid-week, the Reserve Bank of New Zealand (RBNZ) is facing mounting pressure following recent rate cuts by several other major currencies. This week has seen the US Federal Reserve (Fed) cut their rates from 1.75% to 1.25%, a drop of 50 basis points. Similarly, the Reserve Bank of Australia (RBA) cut their rates on Tuesday, sending the interest rate from 0.75% to 0.50%. This shocked markets as they had noted that the RBA had little scope for easing. As a result of the two major nations’ central banks cutting their rates, the RBNZ now falls under pressure to cut its rate, which currently stands at 1.00%.
NZD rallies on USD rate cut
The New Zealand dollar rallied yesterday following the Fed’s emergency interest rate cut. The cut came two weeks before the official US policy decision meeting, something that has not been triggered since the Global Financial Crisis. The Fed cut its rates by half a percent point in response to the threat posed by the coronavirus outbreak. The New Zealand dollar has also been hit heavily by the outbreak of the disease, with the risk-related currency seeing its downfall arrive after markets lost their risk appetite. However, with the Fed’s move, the NZDUSD exchange rate saw a rise.
But pressure is being applied to RBNZ to cut its rates
Despite the slight rally from NZD, the pressure that was applied to the currency on the back of the US and AUD central bank cuts is weighing heavily on the New Zealand dollar’s outlook. The current RBNZ interest rate is currently at 1.00%. the Reserve Bank of New Zealand’s Governor Adrian Orr is set to deliver the next review of the official cash rate (OCR) on the 25th March. ASB Bank yesterday priced in a 25 basis-point cut for the March meeting, but following the recent run of information and central bank action, a 50 basis-point cut isn’t being completely ruled out.
Looking ahead, the New Zealand dollar has little in the way of significant data for its economic outlook for the remainder of the week. This means the market will continue to focus on the coronavirus’ impact, which is likely to add further pressure on the NZ central bank to cut its rates on the 25th March as there is a lack of positive news coming from the global spread of the COVID-19 disease.
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