RBNZ delivers, Kiwi hangs on to 0.7 against dollar

Reserve bank of New Zealand (RBNZ) has delivered a rate cut as promised. Kiwi dropped sharply, in spite of unanimous expectation of a cut today among market participants.

Key highlights -

• RBNZ has reduced rates by 25 basis points, which brings overnight cash rate to 3.25%.
  
  
• RBNZ takes note of moderate growth across globe and volatility in financial markets.
  
  
• Main concerns of RBNZ are weaker commodity prices such as dairy and its contribution towards weak wage inflation and lower inflation expectation. Rapid rise of house prices in Auckland is continuing to concern RBNZ officials.
  
  
• According to RBNZ, New Zealand Dollar (Kiwi) is still overvalued and expects further significant downward adjustment, which will be beneficial to balance fallout from exports.
  
  
• RBNZ keeps the window open for further easing, however that will be data dependent.

Kiwi has fallen sharply from around 0.72 to 0.7 area as RBNZ decided to take action.

Expectations now -

• Next RBNZ meet is scheduled on 23^rd July, however no monetary policy statement/press conference is scheduled in that meeting. RBNZ is likely to reduce rates at least once more in the year.
  
  
• New Zealand dollar is likely to remain depressesed as RBNZ keeps the window open for further reduction in rates and expects Kiwi to correct further down significantly.
  
  
• However, kiwi might bounce back in the short term against dollar, as 0.7 holds and risk reward remains very favorable. With stop loss of 0.7-0.694 area long positions can be taken targeting 0.715, 0.727, 0.739.