NZ Dollar Falls As RBNZ Cuts Rate Unexpectedly, Flags Further Rate Reduction

The New Zealand dollar nose-dived against its major opponents in the Asian session on Wednesday, after the Reserve Bank of New Zealand unexpectedly cut its official cash rate to a record low and suggested the possibility for further cuts citing uncertain global economic outlook and weak inflation.

The Monetary Policy Committee, chaired by Governor Adrian Orr, unanimously decided to reduce the OCR by 25 basis points to 1.5 percent from 1.75 percent.

Economists had expected the benchmark rate to remain at 1.75 percent, where it had been since November 2016.

Although employment is near its maximum sustainable level, the outlook for employment growth is more subdued and capacity pressure is expected to ease slightly in 2019. Consequently, inflationary pressure is expected to rise only slowly.

"Given this employment and inflation outlook, a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates," according to the accompanying statement.

The RBNZ's projections signaled the possibility for another rate cut by March 2020. The latest forecasts show OCR falling to 1.4 percent in March 2020, compared to prior forecast of 1.8 percent.

Risk sentiment further dampened on worries about escalating U.S.-China trade tensions. U.S. Trade Representative Robert Lighthizer confirmed that the U.S. plans to raise tariffs on $200 billion worth of Chinese goods to 25 percent on Friday.

The NZ dollar declined to 0.6525 against the greenback, a level unseen since October 29, 2018. The pair was valued at 0.6601 at yesterday's close. On the downside, 0.64 is seen as the next support level for the kiwi.

The NZ dollar fell to 71.83 against the yen, its lowest since January 3. The pair was valued at 72.77 when it ended deals on Tuesday. Continuation of the kiwi's downtrend may see it challenging support around the 70.00 mark.

The kiwi lost 1.2 percent to a 4-month low of 1.7150 against the euro from yesterday's closing value of 1.6945. The kiwi is poised to find support around the 1.72 level.

The kiwi that closed yesterday's trading at 1.0617 against the aussie tumbled 1 percent to a 3-week low of 1.0723. The kiwi is likely to test support around the 1.09 region.

Looking ahead, at 8:15 am ET, Canada housing starts for April are due.

At 8:30 am ET, Federal Reserve Governor Lael Brainard will deliver a speech at a Community Listening Session hosted by the Federal Reserve Bank of Richmond.