The Reserve Bank of New Zealand just cut its overnight interest rate to 3.25% from 3.5% and now the New Zealand dollar, also known as the kiwi, is just getting crushed.
Near 5 p.m. ET on Wednesday, the kiwi was down more than 2% against the US dollar quickly to as low as $US0.7028.
In its statement, the RBNZ said:
With the fall in commodity prices and the expected weakening in demand, the exchange rate has declined from its recent peak in April, but remains overvalued. A further significant downward adjustment is justified. In light of the forecast deterioration in the current account balance, such an exchange rate adjustment is needed to put New Zealand’s net external position on a more sustainable path.
The RBNZ also added that it expects further easing may be appropriate.
And so in short, what New Zealand wants is its currency to lose value against the dollar to gain back competitiveness in global trade which it has lost amid the rise in the price of milk futures.
Here’s the quick drop in the kiwi.