The kiwi is going bananas
The New Zealand dollar, known as the kiwi, surged against the dollar after the central bank cut its key interest rate.
In a statement on Wednesday (Thursday morning in New Zealand), the Reserve Bank of New Zealand said it was cutting the official cash rate by 25 basis points to 2.5%.
It said,
"Growth in the New Zealand economy has softened over 2015, due mainly to lower terms of trade. Combined with increases in the labour supply from strong net immigration, the slowdown has seen an increase in spare capacity and unemployment. A recovery in export prices, the recent lift in confidence, and increasing domestic demand from the rising population are expected to see growth strengthen over the coming year."
As BI Australia's David Scutt noted, economists had expected the rate cut, which took the key rate to the lowest on record.
New Zealand's central bank said consumer price index inflation was below its 1% to 3% target range, as the local currency strengthened, crude oil prices plunged, and dairy prices fell.
And so, we have yet another interest-rate cut from a major central bank, as the US Federal Reserve heads in the other direction and prepares to likely raise its benchmark rate next week.
This is the crux of the "divergence" theme that economists have been talking about for a while now. And with the US practically on its own in tightening monetary policy, as other countries provide stimulus to curtail slowing growth, some economists think the Fed would inevitably follow the pattern of hiking, then cutting rates.
In afternoon trade in New York, the New Zealand dollar, or the kiwi, hit 0.6734 against the US dollar.
Investing.com