Kiwi takes flight as New Zealand's central bank surprises by standing pat

Adrian Orr governor of the Reserve Bank of New Zealand

The New Zealand dollar and swap rates jumped after the Reserve Bank surprised investors by keeping the official cash rate at 1 per cent.

Market expectations were weighted towards a rate cut at today's monetary policy statement.

"To us, the RBNZ's new growth outlook still appears too rosy", he said.

"We continue to expect the OCR will eventually fall to 0.5 percent".

The kiwi rose to 63.90 U.S. cents at 5pm in Wellington from 63.34 cents immediately before the RBNZ announcement and from 63.37 cents at 8am.

The Reserve Bank (RBNZ) has held its benchmark interest rate at a record low, but signalled it's ready to cut again to support the economy, sending the currency surging.

Imre Speizer, senior markets strategist at Westpac, said the foreign exchange and interest rate markets were positioned for a cut.

"Market expectations have been moving around considerably", from a cut being a 50:50 possibility to a 90 percent likelihood, he said.

The RBNZ said interest rates were low around the world and the economy would need low interest rates to support activity and to meet its inflation and employment objectives. Data released last week showed unemployment ticked up from a decade low but was still below the bank's forecast in August.

"This goes very much against the grain of what nearly all the analysts expected on the day", he said. If the bank retains the phrase "there is scope for further fiscal and monetary easing if necessary" or some similar wording in the statement, it will likely have a very negative impact on the New Zealand currency.

In a statement this afternoon the central bank said employment remains around its maximum sustainable level while inflation remains below the 2% target mid-point but within the bank's target range.

Economic growth is expected to be subdued over the rest of 2019, and the Reserve Bank says it will be monitoring developments as they happen.

"The Reserve Bank is increasingly pessimistic about the future due to this Government's refusal to implement any kind of economic plan to restart economic growth".

Growth in global trade and manufacturing is weak and uncertainty remains high, dampening global business investment.

The New Zealand dollar fell against all other most-traded currencies today, even its Australian counterpart, which was rather weak itself.



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