The New Zealand dollar remains under pressure, as pair has dropped close to 1.0% since Monday. In Wednesday’s North American session, NZD/USD is trading at 0.6587, down 0.21% on the day. On the release front, the Reserve Bank of New Zealand surprised the markets, cutting the benchmark rate from 1.75% to 1.50%. There are no major events in the U.S. on the calendar. On Thursday, the U.S. releases producer price index reports and unemployment claims.
After Australia’s central bank defied expectations on Wednesday and maintained interest rates, the RBNZ followed suit and unexpectedly cut the benchmark rate by 25 basis points. This marked the first rate cut since November 2016, and has added to the pressure on the New Zealand dollar. Earlier on Wednesday, NZD/USD touched a low of 0.6527, its lowest level since the end of October. The RNBZ issued a dovish rate statement, saying that the rate cut was necessary to boost employment and inflation forecasts. Rate-setters noted the uncertainty over the global economy and that both global and domestic growth had slowed since mid-2018, dampening New Zealand’s economy. The statement added that the rate cut “provides a more balanced outlook for interest rates”.
Adding to the kiwi’s troubles this week is the escalation in trade tensions between China and the U.S. On Sunday, U.S President Trump said that the U.S. would raise tariffs on $200 billion worth of Chinese goods as early as Friday, from 10% to 25%. Chinese officials had said it would cancel the talks, but this turned out to be an empty threat. Chinese Vice Premier Liu He is scheduled to lead a Chinese delegation to Washington. Will the new U.S. tariffs be rescinded? Treasury Secretary Steve Munchin said that the tariffs could be cancelled when the talks resume. Such a move would kick-start risk appetite,which would be good news for the New Zealand dollar.
