New Zealand dollar jumps in Asian session today after RBNZ delivered that full priced-in rate cut. RBNZ lowered the OCR by 25bps to 2.00% as widely expected. The central bank maintained easing bias and said that “our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.” RBNZ also complained that the high exchange rate of Kiwi is “adding further pressure to the export and import-competing sectors”. And,”together with low global inflation, is causing negative inflation in the tradables sector.”
Kiwi’s strength is also seen against Aussie. AUD/NZD was rejected by 1.0769 resistance and drops sharply today. The developments kept the cross in range of 1.0446/0769 and near term outlook is neutral first. A downside breakout is mildly in favor and below 1.0446 would likely extend the whole fall from 1.1638 through 1.0310 low. Nonetheless, above 1.0769 will extend rebound from 1.0310 to medium term falling trend line resistance (now at 1.1250).
Dollar remains one of the weakest major currency this week. Former Fed chairman Ben Bernanke wrote in a blog post that “with a shorter distance to travel to get to a neutral level of the funds rate, rate hikes are seen as less urgent even by those participants inclined to be hawkish.” And he noted that policy makers see current policy as “less accommodative, the labor market as less tight, and inflationary pressures as more limited.” He also mentioned that “there may be a greater possibility that running the economy a bit ‘hot’ will lead to better productivity performance over time.”
On the data front, UK RICS house price balance dropped to 5 in July. Australia consumer inflation expectation rose 3.5% in August. US will release import price index and jobless claims later today. Canada will release new housing price index.