NZD Slammed Following Ultra Dovish RBNZ Decision

The New Zealand Dollar was slammed overnight, following the Reserve Bank of Zealand's (RBNZ) rate decision.

As expected the central bank doubled the amount of quantitative easing it was conducting, buying more bonds as part of the program. Seeing them expand the Large Scale Asset Purchase (LSAP) programme to purchase up to a maximum of $60 billion over the next 12 months from $30 billion.

The RBNZ also inline with expectations left interest rates unchanged at 0.25%, noting this will remain at the low level until early 2021. However, the real dovish factor was them leaving the door open to the idea of negative interest rates. Additionally, they also hinted that FX intervention (i.e. selling NZD to weaken its value to boost exports) was an option within its toolkit.

Note some key comments from the central bank:

  • RBNZ expects to see retail interest rates decline further.

  • Prepared to cut cash rate further if needed.

  • Balance of economic risk remains to downside.

  • Keeping interest rates low for foreseeable future

  • Committed to achieving employment, inflation objectives .

  • Forecasts show no chance of rate cut through Q1 2021.

What does this mean for the market?

NZD was hit hard across the board, given the dovish nature of this rate decision. The prospect of negative interest rates, is enough to force and maintain a fundamental downside tone for the respective currency.



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