New Zealand dollar collapses after 50 bps cut from RBNZ

Key Points

• RBNZ cuts interest rates from 5.50% to 4.75%
• NZD/USD fell over 1% to below 0.6100 after RBNZ decision
• AUD/NZD trading near 1.1080, close to multi-year highs
• 87% chance of 25 basis point cut by US Fed in November

Reserve Bank of New Zealand Cuts Interest Rates 50 bps

The Reserve Bank of New Zealand (RBNZ) has cut interest rates by 50 basis points, marking the second consecutive reduction, which brings the rate from 5.50% in August to 4.75%. This move was anticipated, but the market was surprised by the RBNZ's dovish tone pointing to additional cuts in the near future. Such signals suggest that the central bank is prioritizing economic support, potentially impacting the New Zealand dollar's (NZD) attractiveness to investors. Lower interest rates often lead to decreased yields on investments denominated in the affected currency.

NZD/USD Falls Below 0.6100

Following the RBNZ's rate decision, the NZD/USD pair fell more than 1%, slipping below the 0.6100 mark. The kiwi had previously traded as high as 0.6370 against the US dollar at the end of September, but October has seen a bearish trend for the commodity currency, with a drop of around 300 pips to approximately 0.6075. The pair experienced lows of 0.5800 in the past year, and its recent movements reflect ongoing volatility.

NZD/USD price history

New Zealand vs Australia: Dollar Dynamics

The AUD/NZD pair is currently trading near 1.1080, close to multi-year highs above 1.1100, within 100 pips. Historically, the Australian dollar (AUD) and the New Zealand dollar (NZD) have shown a positive correlation, resulting in the currency cross trading within a range of 1.0600 to 1.1100 over the last year. This attractiveness of the pair comes from its relative stability, coupled with its approach to key resistance levels.

AUD/NZD price history

What's Next for NZD/USD?

The New Zealand dollar (NZD) is navigating a complex landscape shaped by domestic and international factors. The RBNZ's dovish outlook suggests further rate cuts could diminish the NZD's appeal due to reduced yield attractiveness. Internationally, the NZD's weakness against the strong US dollar reflects a broader bearish trend. Upcoming Federal Reserve decisions in November, alongside robust US economic indicators like job growth and retail sales, could maintain USD strength. With an 87% chance of a 25 basis point cut and 0% for a 50 basis point cut, drastic monetary easing is less expected. Traders should watch both New Zealand's policies and US economic data to assess future NZD/USD movements.

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