NZ Dollar Falls Sharply After RBNZ's 50bp Rate Cut

The New Zealand dollar declined against its major counterparts in the Asian session on Wednesday, as the Reserve Bank of New Zealand surprised markets with a rate cut of 50 basis points to underpin economic growth and revive inflation.

The Monetary Policy Committee of Reserve Bank of New Zealand headed by Adrian Orr cut the official cash rate by 50 basis points to 1.00 percent. Economists had forecast a quarter point reduction.

The bank had earlier reduced the rate by 25 basis points in May, which was the first cut in more than two years.

Policymakers said employment and inflation would likely ease relative to central bank's targets in the absence of additional monetary stimulus.

"Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level," the bank said in a statement.

The MPC noted that growth headwinds are rising. Further, heightened uncertainty and falling global trade continued to weigh on growth of trading partners.

The kiwi was trading mixed against its major counterparts on Tuesday. While it rose against the yen and the aussie, it was steady against the greenback and the euro.

The kiwi fell below the key 0.64 level against the greenback, touching more than a 3-1/2-year low of 0.6377. The kiwi is seen finding support around the 0.62 region.

The kiwi declined to a 6-1/2-year low of 67.58 against the yen from yesterday's closing value of 69.46. Next key support level for the kiwi is seen around the 64.00 level.

The NZ currency depreciated to more than a 9-month low of 1.7574 against the euro, down from Tuesday's New York session close of 1.7155. Should the kiwi extends decline, 1.80 is possibly seen as its next support level.

The kiwi dropped to a 4-week low of 1.0496 against the aussie, compared to 1.0354 hit late New York Tuesday. The kiwi is likely to face support around the 1.06 region.

Survey from the Australian Industry Group showed that Australia construction sector contracted at the steepest rate in six years in July.

The Performance of Construction Index dropped to 39.1 in July from 43.0 in June. Any reading below 50 indicates contraction in the sector.

Looking ahead, U.K. Halifax house prices for July are due in the European session.

In the New York session, U.S. consumer credit for June and Canada Ivey PMI for July are scheduled for release.

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