Dollar soars as investors price out negative cash rate

The kiwi dollar had been trading at 68.30 US cents prior to the RBNZ’s policy statement at 2pm this afternoon, but surged as high as 69.03 cents as investors walked back a prediction the central bank would cut the OCR down the track. At 5pm it was trading at 68.90 US cents.

“Given the recent resilience of the domestic economy, we assess that the funding for lending scheme will now prove to be enough future stimulus, and that the RBNZ will keep the official cash rate at 0.25 percent,” said ASB economist Nick Tuffley in a note.

This would leave interest rates in NZ above current levels in Australia, where the RBA has cut the cash rate to 0.1 percent. This gap caused the kiwi to climb against its trans-Tasman counterpart, trading at 94.21 Australian cents at 5pm, up from around 93.75 cents shortly before the news.

Tim Kelleher, head of institutional foreign exchange sales at Commonwealth Bank of Australia, said the leading banks changing their rate cut forecasts prompted a selloff in the bond market which had pushed the currency higher.