Currency talk: ‘The market was not ready for a rate cut’
Jason Walls and ASB's Tim Kelleher break down the latest currency news. With special audio feature.
The Reserve Bank’s cut to the official cash rate (OCR) last week took the market by surprise, ASB head of institutional FX sales Tim Kelleher says.
Last Thursday, the OCR was cut 25 basis points to 2.25% – the lowest point in New Zealand’s history.
“We knew the Reserve Bank was on an easing bias but the cut last week wasn’t priced in at all,” Mr Kelleher says.
“The market was clearly not ready for the cut.”
The kiwi dollar dropped more than a cent against the US dollar and roughly the same against the Aussie dollar after the cut was announced.
Since the cut last week, the kiwi has bounced back against the greenback but stayed low against the Aussie dollar.
“Clearly the market is seeing a greater risk of cuts here and Australia is still on hold. Currency play-wise, if you’re short, then the Aussie dollar is the place to be,” Mr Kelleher says.
As well as the surprise from the Reserve Bank last week, some eyebrows shot up in Europe.
The European central bank (ECB) launched a “bazooka” last night by cutting interest rates to zero and slashing bank deposit rates to -0.4%.
The euro dropped 1.6% to $1.08 against the greenback after the cuts were announced.
But the euro bounced back almost 4c after ECB president Mario Draghi suggested this was the last round of stimulus.
This was the biggest one-day swing in the currency’s history.
“The positioning in the market is clearly short, so no matter what Mr Draghi is doing, he’s not getting the currency down,” Mr Kelleher says.
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Tue, 15 Mar 2016
Tue, 15 Mar 2016
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Currency talk: ‘The market was not ready for a rate cut’
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