The New Zealand dollar surprisingly traded up half a cent against its US counterpart, after the Reserve Bank cut the official cash rate by 25 basis points yesterday.
An interest cut would normally deter investors due to lower returns on investments, but Reserve Bank Governor Graeme Wheeler's policy guidance on the official cash rate (OCR) was perceived as ''moderate'' by the markets and analysts, prompting the half-cent rise.
Before the Reserve Bank's statement, the kiwi rose from US65.78c to US66.47c, then afterwards settled around US66.2c.
At 5pm yesterday it stood at US66.31c.
The Australian dollar was down further yesterday, from US74.17c to US73.77c, after its Reserve Bank said there was room to cut rates further.
After the Bank of Canada cut interest rates last week, the Canadian dollar yesterday hit a 10-year low against the greenback, on weaker growth prospects.
Westpac chief economist Dominick Stephens said while markets expected the 25-basis-point cut in New Zealand, there had also been pricing in of some risk of a 50-basis-point reduction yesterday.
''These surprisingly moderate comments contributed to the half-cent increase in the exchange rate that followed the OCR review,'' Mr Stephens said.
The repetitive plunge of global dairy prices in recent months has heightened calls for at least three OCR cuts this year, to stimulate the economy, with a small number of new calls to consider going to an all-time low of 2%.
Mr Stephens said Mr Wheeler's policy guidance was ''probably a tad'' more moderate than the markets expected, with the two-year swap rates between banks then rising about five basis points after the announcement.
Mr Wheeler dropped his reference to the New Zealand dollar being unjustifiably and unsustainably high - criteria which warrant intervention - while saying its significant decline since April and lower interest rates had led to easier monetary conditions, BusinessDesk reported.
''While the currency depreciation will provide support to the export and import competing sectors, further depreciation is necessary given the weakness in export commodity prices,'' Mr Wheeler said yesterday in the statement.
Mr Stephens said given Mr Wheeler had said ''some further [OCR] easing seems likely'', he expected another OCR cut in September, but ''beyond that'', he was unsure what the Reserve Bank intended to do.
