NZ dollar jumps after RBA slashes rates

The kiwi was trading at 62.66 US cents at 5pm. Photo / 123RF

The New Zealand dollar jumped, yanked higher in the wake of the Australian dollar after the Reserve Bank of Australia cut its cash rate in response to the coronavirus.

The kiwi was trading at 62.66 US cents at 5pm in Wellington, down from 62.81 cents immediately after the RBA's announcement and from 62.29 cents at the same time yesterday. The trade-weighted index was at 69.82 points from 69.51.

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The Australian dollar jumped from 65.30 US cents immediately before the announcement to as high as 65.66 cents. The New Zealand dollar was at 95.63 Australian cents at 5pm from 95.46 cents at the same time yesterday

"The coronavirus has clouded the near-term outlook for the global economy and means that global growth in the first half of 2020 will be lower than earlier expected," the RBA said in its latest statement on monetary policy.

It was "appropriate to ease monetary policy further to provide additional support to employment and economic activity," it said, promising to continue to monitor developments and to assess the implications of the coronavirus for the economy.

"The board is prepared to ease monetary policy further to support the Australian economy."

The RBA cut its cash rate from 0.75 per cent to 0.5 per cent.

On the heels of the announcement, ASB Bank said it now expects New Zealand's central bank to cut its official cash rate by 25 basis points later this month and by another 25 points in May. That will take the OCR to 0.5 per cent from 1 per cent currently.

Tim Kelleher, the head of foreign exchange sales at ASB's parent, Commonwealth Bank of Australia, said the RBA "was stuck between a rock and a hard place" and had been forced into today's rate cut by market pricing.

But the RBNZ has the luxury of time, although it's possible governor Adrian Orr might move the OCR before the central bank's next scheduled monetary policy committee meeting on March 25.

"It's a long time between now and then," Kelleher said. "Anything's possible with him in charge – he does fancy himself as the white knight riding to the rescue."

At CBA, that possibility "has been discussed but it's not the core view."

Of immediate import is a conference call between the G7 finance ministers scheduled for this evening to discuss measures that major world economies could take to mitigate the economic impact of the virus.

Kelleher said much will depend on whether equity markets continue tanking – most markets around the world have rebounded a little today – and on the spread of the virus within New Zealand.

To date, New Zealand has only one confirmed case, that of a traveller from Iran through Bali. The first two cases in Indonesia were confirmed today, taking the tally to almost 91,000 cases in 76 countries and at least 3,125 deaths.

The New Zealand dollar was at 49.03 British pence from 48.55 pence at 5pm yesterday, at 56.25 euro cents from 56.37, at 67.67 yen from 67.41 and at 4.3661 Chinese yuan from 4.3406.

The two-year swap rate eased to a bid price of 0.7436 per cent from 0.86950 yesterday while 10-year swaps rose to 1.1100 per cent from 1.0875.