NZD/USD tests 200DMA as RBNZ joins the jumbo rate cut club

• The RBNZ cut New Zealand’s cash rate by 50bps to 4.75% in October
• Markets were priced for 44bps of easing, with 89 expected over the remainder of 2024
• Markets now deem a follow-up 50 in November as highly likely
• NZD/USD slides to 200DMA, an important technical level for directional risks

RBNZ goes big with a 50

The Reserve Bank of New Zealand (RBNZ) has joined the Federal Reserve in the jumbo rate cut club, slashing its cash rate by 50 basis points to 4.75% at the conclusion of its October monetary policy decision.

“The New Zealand economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy,” the RBNZ said in its policy staement.

“The Committee agreed that it is appropriate to cut the OCR by 50 basis points to achieve and maintain low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate.”

Helping to explain the magnitude of the cut, the committee said annual consumer price inflation is now “within its 1 to 3 percent inflation target range and converging on the 2 percent midpoint.”

And does nothing to hose down speculation of another 50

In the minutes of the meeting released alongside the statement, the tone did nothing to hose down speculation that it will follow the jumbo cut with another when it next meets in late November.

“The Committee discussed the respective benefits of a 25-basis point versus a 50-basis point cut in the OCR,” the minutes said.

“They agreed that a 50-basis point cut at this time is most consistent with the Committee’s mandate of maintaining low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate.

“The Committee noted that current short-term market pricing is consistent with this decision.”

The nod to market pricing is important given 89 basis points of easing was factored in over this meeting and next, implying not one but two 50s were favored by traders by the end of 2024. The implied probability of a follow-up 50 has strengthened as a result, acting to push NZD/USD lower consequently.

NZD/USD testing important technical level

-- Written by David Scutt

Follow David on Twitter @scutty