The New Zealand dollar fell after the Bank of New Zealand unexpectedly cut interest rates sharply. The Bank of New Zealand lowered the official interest rate to 1% from 1.5%, reducing the interest rate to 50%. This surprises the market as it expects a 25% decline. Inflation and employment goals coupled with uncertainties in world trade led to this decision, and there is concern that trade wars between China and the United States would further increase tensions and uncertainty.
For the New Zealand dollar, the central bank may now cut interest rates by another 25% to 75%. The central bank's monetary policy statement indicates that this is possible and expects further devaluation of the kiwi dollar if trade tensions worsen. But as for the domestic economy, the New Zealand dollar may strengthen if the economic data trend follows yesterday's job report.
In the near-term, the NZD/USD will be closely eyeing the upcoming press conference from RBNZ Governor Adrian Orr. Odds of a further 25bps rate cut are about 50% according to overnight index swaps. If he errs on the side of caution and underpins the focus on data-dependency, this may offset recent selling pressure in the New Zealand Dollar.