The Royal Bank of New Zealand today kept interest rates unchanged but turned dovish, saying ‘the more likely direction of our next OCR move is down’. The central bank pointed to below target inflation, slowing domestic and global growth and said that ‘the risk of a more pronounced global downturn has increased, and low business sentiment continues to weigh on domestic spending’. All in, a very expansionary policy meeting with rates now likely lower for longer.
The Reserve Bank of New Zealand kept rates unchanged at today’s meeting, as expected but it was the accompanying statement that impacted the most. The Bank shifted to a more dovish stance, joining a host of other central banks that have adopted that bias since the Fed stopped hiking rates. The Bank said the next rate adjustment would likely be lower (at previous meetings they had stated that the next move could be up or down) and that it would keep the current expansionary stance for a “considerable period”.

It expects low interest rates, increased government spending and investment to support growth in 2019 while acknowledging that the world economy is weaker and the risk of a pronounced global downturn has increased.

Money markets are now giving a near 50% chance of a rate cut by May and a 75% chance of one by August. The kiwi was immediately marked lower and crashed to the lowest level versus the U.S. dollar since March 11, crossing below the 100-day moving average at 0.6812 with ease. The next possible support level could be the 200-day moving average at 0.6738, which has supported prices on a closing basis since February 13.