The New Zealand dollar tumbled to five-year lows on Thursday after the central bank surprised with an interest rate cut and left the door open for more easings to support a slowing economy. In contrast, the Australian dollar jumped after a solid jobs report reinforced the case for interest rates to remain steady for a while.
The kiwi skidded nearly two cents to $0.7028 after the Reserve Bank of New Zealand (RBNZ) joined the global central bank rate-cutting club and reduced its cash rate by 25 basis points to 3.25 percent. Financial markets had put the chance of a cut at close to 50-50 although economists in a Reuters poll had favoured no change by 10 to 5. "There is clearly a change of heart. It would suggest they've got a bias to go again with a further 25 basis point cut," said Tom Kennedy, an economist at J.P. Morgan.
"That does sync with the idea that New Zealand, to an extent, is re-commencing a modest easing cycle, while at the same time the US is likely to start raising rates later this year," he added. Support is seen at $0.7000 with resistance at $0.7100. Bank bill futures rose as much as 16 ticks, and short term government bond yields dropped 12.5 basis points. The neighbouring Aussie dollar surged nearly 3 percent higher to a seven-month high of NZ$1.1022. The Australian dollar also jumped around half a cent to $0.7774, pulling away from a two-month trough touched last week. Resistance was found at $0.7793 and last week's peak of $0.7819.
Australian government bond futures fell, with the three-year bond contract down 5 ticks to 97.870, and the 10-year contract off 8.5 points at 96.8675, leading to a bearish steepening of the curve. The 10-year futures fell as far as 96.8500, its weakest since early December, while yields on 10-year cash bonds jumped to 3.14 percent.