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Kiwi Drops to Two-Year Low Versus Aussie on RBNZ Rate Cut Bets - BLOOMBERG
(Bloomberg) -- New Zealand’s dollar dropped to a two-year low against its Australian counterpart on rising speculation the former’s central bank will cut the official cash rate by more than half a percentage point next week.
The kiwi dollar weakened as much as 0.6% to 1.1180 per Australian dollar, the lowest since October 2022. New Zealand’s currency fell to a one-year low versus the greenback and the nation’s short-dated bond yields also slid.
Overnight-indexed swaps indicate that it’s certain the Reserve Bank of New Zealand will cut its policy rate by 50 basis points on Nov. 27, with a 22% chance of a 75 basis points reduction. The nation’s growth is struggling due to the impact of a restrictive monetary policy, with Australia & New Zealand Banking Group Ltd. estimating that the economy was in a recession in the third quarter.
A half percentage point rate cut “is clearly the path of least resistance,” ANZ economists and strategists, including Sharon Zollner, wrote in a note. “But if there is going to be a surprise, given the RBNZ’s confidence regarding the inflation outlook and the unusually long gap until the next meeting,” a reduction of 75 basis points seems likelier than 25 basis points.
The impact that high interest rates had on business investment and employment is still being felt, RBNZ Governor Adrian Orr told reporters earlier this month. And while interest rates are now declining, there’s still a lag in the real economy, he said.
“Investors are going long AUD/NZD ahead of the RBNZ performing another jumbo-sized rate cut next week,” said David Forrester, a senior strategist at Credit Agricole CIB in Singapore.
The kiwi dollar fell as much as 0.5% to 58.29 US cents, the weakest since November 2023. The nation’s five-year yield was down seven basis points to 4.09%.
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