Kiwi soars to one-year high

Bloomberg

New Zealand’s dollar surged to the highest level since May 2015 after traders deemed the central bank’s decision to cut borrowing costs was insufficiently dovish amid the global ardor for yield that’s been spurred by unprecedented global monetary easing.
The Aussie and kiwi dollars have gained at least 0.5 percent this month as their central banks reduced benchmark interest rates a quarter point to records, but didn’t indicate a willingness to ease policy again soon. South Korea’s won tumbled Thursday after its central bank left borrowing costs alone while saying it has room to cut again. The U.S. dollar was near a seven-week low after last Friday’s better-than-expected jobs data left traders maintaining bets that the Federal Reserve won’t tighten policy until next year.
“Australia and New Zealand yields remain attractive in a low rate world,” said Jason Wong, a currency strategist at Bank of New Zealand in Wellington. “There’d still be upward pressure on the currencies even with rate cuts and that has been an ongoing theme since the start of the current easing cycle. The U.S. outlook and in particularly the prospect of Fed policy tightening remains the key for the two currencies.”
The Reserve Bank of New Zealand lowered its official cash rate by a quarter point to 2 percent and published bank-bill forecasts indicating just one more reduction was in the pipeline. All sixteen economists surveyed by Bloomberg had expected the RBNZ to reduce by a quarter point.
The Reserve Bank of Australia and RBNZ prefer weaker currencies to stoke inflation back into their respective target bands. Two rate reductions by the Australian central bank since May and six by its antipodean neighbor in the past 14 months haven’t weakened exchange rates as their benchmark borrowing costs remain well above those of their peers, attracting foreign
investment.
The kiwi climbed 0.6 percent to 72.47 U.S. cents as of 6:31 a.m. in London, after jumping as much as 1.9 percent to 73.41 after the RBNZ announcement. The two-year swap rate was little changed at 1.98 percent after rising as much as 7 basis points to 2.05 percent. The Aussie was little changed at 76.93 U.S. cents and is at levels not seen since before the May rate reduction. Japan markets were closed for a public holiday.
After saying in his policy statement that a decline in the kiwi dollar “is needed,” Wheeler conceded in a news conference in Wellington that the RBNZ had “very limited influence” over the exchange rate. He also said he hadn’t given serious consideration to a half-point reduction because it wasn’t warranted and, in a “normal” situation, the RBNZ would probably be raising rates to cool the rampant housing market.