Kiwi soars to a one-year high as RBNZ cuts rates to 2 percent

The New Zealand dollar (kiwi) rose to a yearly high at $0.7340 after the Reserve Bank of New Zealand (RBNZ) announced that it has cut interest rates by 25 basis points to a record low of 2 percent. Many investors were however disappointed because they were expecting a 50 percent cut in interest rates and more easing.

The Reserve Bank of New Zealand Governor, Graeme Wheeler indicated that more easing was likely and said the strength of the currency was making it difficult to meet RBNZ's 1 to 3 percent inflation target band. Wheeler said "The high exchange rate is adding further pressure to the export and import competing sectors and together with low global inflation, is causing negative inflation in the tradables sector" He added that "a decline in the exchange rate is needed." Inflation is currently at 0.4 percent and it has been below the RBNZ's target band for seven straight quarters.

Today's rate cut is the sixth in 14 months. The Kiwi went in complete opposite direction, surging up because RBNZ's monetary decision was not dovish enough.