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Fed Cuts Rates By 0.50% | Kiwi Continues Bounce Back

Published March 4, 2020

The Kiwi Dollar continued its mini recovery from Monday mornings lows, gaining ground on the back of a weaker US Dollar which was sold as the US Fed cut interest rates by 0.50% earlier this morning.

Fed Cuts Rates

The US Federal Reserve has cut its interest rates by 50 basis-points to a target range of 1.0 – 1.25% in an emergency move to shield the economy from the impact of coronavirus. Fed Chair Jerome Powell said the virus would weigh on the US economy for some time, and believed the central bank’s action would provide “a meaningful boost to the economy”. The greenback has been sold this morning providing a boost for currencies such as the NZD and AUD.

RBA Cuts Rates

The Australian Dollar is the best performing major currency overnight despite yesterday’s move by the RBA to cut rates in response to the coronavirus outbreak. The cash rate has been cut by 25 bps to 0.50% and is the fourth move lower in 12 months. Australia became the first central bank outside of China to ease policy in response to the coronavirus outbreak. It is almost certain other central banks will follow suit in the coming days and weeks.

Pressure Mounts on RBNZ

Rate cuts in the U.S and Australia puts more pressure on the RBNZ to cut the OCR, which currently stands at 1.0%. Local markets will be keeping a close eye on the RBNZ and whether an early surprise cut is on the cards, or whether they will wait for the next scheduled review on March 25th. Most analysts have priced in a 0.25% cut this month, however the sudden move by the US fed overnight has increased the probability the RBNZ would also cut by 0.5%.