The New Zealand dollar took a nosedive when the central bank said it is now more likely to cut rates as both the global and domestic economic outlook weaken. 

The kiwi was trading at 68.01 US cents at 5pm in Wellington versus 69.11 at 8am. The trade-weighted index was at 73.72 from 74.80.

The central bank today kept the official cash rate on hold as expected at 1.75 percent, but surprised investors with the change of mood. 

“Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down,” governor Adrian Orr said. 

Six weeks ago, at the prior announcement, “they made it very clear that the risks were broadly balanced but now they have come out and essentially disregarded that,” says Mike Shirley, senior dealer at Kiwibank. 

In the February statement Orr said the direction of its next OCR move could have been up or down. 

While today’s stance isn’t entirely out of line with other central banks that have moved to a more dovish position, “relative to the point from where we have come, it’s not a gradual steering of the ship. This is a spin of the wheel as hard and fast as you can.” 

Shirley said there is scope for the kiwi to move lower in the overnight session. 

The kiwi also fell sharply against the Australian dollar and was trading at 95.71 Australian cents from 96.75 Australian cents at 8am.

“The parity party is cancelled for another year,” said Tim Kelleher, head of institutional foreign exchange sales at ASB Bank. The kiwi had been creeping higher against the Aussie, leading to some speculation it could reach parity. 

Kelleher said ASB is expecting a rate cut in August and said there is potential for another in May. Against the greenback, he says the kiwi could test 67.50 US cents. 

The kiwi was trading at 51.59 British Pence versus 52.25 pence this morning. It traded at 60.42 euro cents from 61.27, at 75.18 Japanese yen from 76.37 and at 4.5667 Chinese yuan from 4.6411. 

Swap rates were also hammered, with the two-year swap falling to 1.6210 percent from 1.7809 percent yesterday. They earlier reached 1.5830 percent, the lowest in at least 20 years, according to Refinitiv prices. The 10-year swap fell to 2.0925 from 2.1750 percent. It earlier fell to 2.04 percent.

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