NZD/USD drops and pops in response to RBNZ/Fed rate cuts
- NZD/USD bounces off fresh lows since May 2009.
- RBNZ announced a 0.75% rate cut, Fed slashed rates to zero during the weekend.
- Fed also announced $700 billion worth of QE.
- Markets cheered US President Trump’s stimulus on Friday.
Following its week-start gap down to 0.5985, the fresh lows since May 2009, NZD/USD bounces back to 0.6140 as the Asian markets begin the week for trading. The fuel behind the moves was from the RBNZ and the Fed as both the central bankers announced surprise rate cuts, together with Fed’s QE (Quantitative Easing), during the weekend.
After a long wait, the RBNZ announced a 0.75% cut to its benchmark interest rate, lowering down to 0.25% from 1.0%. Additionally, it also delayed the start of new capital requirements by 12 months. The New Zealand central bank was the final one holding the ground without any response to the coronavirus (COVID-19) woes. Despite announcing the 0.75% rate cut, the central bank held its bullish bias while saying, “Committee agreed unanimously to keep OCR at 0.2.5 percent for at least 12 months.”
Following the RBNZ decision, New Zealand’s Finance Minister Robertson said that the moves were part of the coordinated response (to the pandemic).
Read: Breaking: Reserve Bank of New Zealand sets official cash rate at 0.25 pct
On the other hand, the Fed surprised markets, including US President Donald Trump, with Fed rates funneling down to near-zero levels with $700 billion worth of quantitative easing. Out of the total $700 QE, $500 will be of Treasuries and $200 will be in the form of agency-backed mortgage securities. Markets were anticipating a 100 basis points of the rate cut from the Fed during this week’s FOMC.
It should also be noted that the US President’s multi-billion bill to counter the disease is yet to take effect and will mark another step by the world’s largest economy is emerging out of the pandemic. US President Donald Trump recently declared a national emergency while also spoke to grocery stores and made sure to “Make America Great Again!”
Also Read: What you need to know for markets opening: Europe on lock-down, risk-off firmly back on the agenda
With the surprise moves during the weekend, investors will take note of each incoming COVID-19 headlines.
Late-February low near 0.6200 holds the key to pair‘s further upside.