The New Zealand dollar fell to its 6-month low level against the U.S. dollar after the Reserve Bank of New Zealand cut the interest rate by a quarter percent point in its first rate reduction in the last five years.
Today New Zealand currency (also known as Kiwi) continued its downward trend started a week ago when traders began to decrease their positions in NZD as the speculations that the central bank will have to lower the benchmark interest rate prevailed.
Even after this rate cut traders continue to expect more rate reductions later this year. As the economic growth declines, the central bank will be forced to lower the record-high rates in order to support the business and consumer activity.
Reduction of the interest rate is a major blow for the New Zealand dollar — a currency which growth relied mostly on the so called carry trades. In NZD-based carry trades investors bought high-yielding New Zealand securities with the cheap Japanese yen and U.S. dollar spurring the demand for the Kiwi.
NZD/USD declined from 0.7438 to 0.7419 as of 9:00 GMT with the daily minimum at 0.7401 — the lowest since January 22. NZD/JPY dropped from 80.26 to 79.85 making it a second declining day in a row. AUD/NZD rose from 1.2903 to 1.2945 as the rate difference between these two currenÑies declined.
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