This Morning, RBNZ delivered a 25bp rate cut to 2.00%. After the announcement, NZDUSD jumped 150pips to 0.7340. The rally results from the near-certainty of the rate cut and the Interest rate markets have been fully priced for this 25bp cut with a small chance of an aggressive 50bp cut. Given a rate cut is seen as a certainty, market is mostly driven by the language and forward guidance offered by RBNZ. Obviously, market expected a more dovish statement to hold NZD down. However, RBNZ is unwilling to see NZD popping up. In the statement, RBNZ implies that high exchange rate will place further pressure to the export and import-competing sectors and drive inflation rate lower and further easing is likely if required. Therefore, if NZD maintains in high level, the likelihood of another rate cut will increase.
After breaking through the key resistance level 0.7660, AUDUSD is trending higher and printed fresh trend highs at 0.7755. The sell-off of USD is the catalyst of this bullish because market does not expect Feds rate hike before elections in November. Nevertheless, NAB predicted 2 rate cuts to 1.0% in 2017 with more easing measures. RBA is likely to wait and see if the AUD keeps strengthening and inflation remains low.
OIL/USD fell sharply to 41.30 down 3% as US Crude Oil Inventory data showed a sharp draw of 3.9mm barrels of Gasoline last week.
