NZ RBNZ cut to weigh on the currency

The NZD has taken over the EUR as the worst performing currency against the USD in G10 space. While market expected some easing bias from the RBNZ into its June meeting, the 25bp rate cut and further easing signals were stronger than expected and has sent the NZD/USD down by 4.7% since that meeting and nearly 12% year-to-date.

The RBNZ's proactive move and firm easing bias was aimed at keeping downward pressure on the currency. This is evidenced by the June OCR statement that the currency remains overvalued and that a further significant downward adjustment is justified. The easing bias indicated that the RBNZ was concerned on growth more than imbalances in the housing sector.

The disappointing 1Q GDP growth released after the June meeting could have increased the chance of a July cut.

The 2Q CPI print will be another data point to observe, but the deceleration of growth probably means the hurdle for a July cut is now lower, says Bank of America.