Currency - GBP / New Zealand Dollar
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The Reserve Bank of New Zealand (RBNZ) surprised everyone by cutting the cost of lending in New Zealand by 50 basis points rather than the 25 bp that most analysts had forecast. They claimed that this did not alter their expectation of the depth of their interest rate cutting but that they were cutting early to avoid larger cuts later on. As I mentioned yesterday, this was perhaps the only scenario in which the NZ Dollar might weaken after their decision and we started today with the Sterling - NZ Dollar exchange rate a full 8 cents higher than the middle of yesterday’s trade. Those of you who took the opportunity to place automated orders overnight did rather well out of this surprise verdict. You’ll spot them in the street as the ones grinning in a smug kind of way.
Whether the RBNZ is right to cut as aggressively as they did is open to debate and whether they will manage to slow and reverse the economic slowdown sufficiently with just a few additional small cuts is anyone’s guess at this stage but you have to admire their determination to do the right thing. Perhaps Bank of England Governor, Mervyn King will take note. My mortgage says he should but he probably won’t. In the short term, the Pound is likely to slide back after this knee jerk reaction but if we see further signs of a NZ slowdown and therefore more chance of further and perhaps deeper than expected interest rate cuts, then we may well see a test of the NZ$2.75 level. Place your market orders now.
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