New Zealand Dollar Falls on Rate Cut

New Zealand dollarThe New Zealand currency declined against the U.S. dollar, the yen and its Australian counterpart today after the country’s central bank decided to cut the interest rate to a record low amidst the raging recession.

The Reserve Bank of New Zealand reduced the official cash rate (OCR) to 3.5 percent down from 5 percent. The same 1.5 percent cut was conducted also on December 4. Analysts didn’t expect one more cut of such extent in January.

As the New Zealand is the exporting country, the monetary authorities are worried with the worsening conditions in their trade partners’ economies. Stimulation of the national production is performed via the credit cost reduction and dumping of the currency, which makes the exported products more competitive.

Currency analysts see today’s monetary decision as a positive one that in the long-term period will prove to be helpful not only to the economy but to the New Zealand dollar as well. But in the meanwhile they expect more cuts (at least 100 basis points by the month of March) and probably some other measures to increase the NZD liquidity.

NZD/USD fell from 0.5246 to 0.5144 as of 8:21 GMT today after falling as low as 0.5130 — the lowest level since December 2002. NZD/JPY declined from 47.41 to 46.08, while AUD/NZD went up from 1.2684 to 1.2757 and reached its highest level since August 4.