AUD/USD and NZD/USD Fundamental Weekly Forecast – RBNZ Slashes OCR 75 Basis Points to 0.25%

This week’s economic news from New Zealand should give a clearer picture of the coronavirus’ impact on their respective economies. Additionally, investors will get the opportunity to react to fresh economic data from China including Industrial Production, Fixed Asset Investment, Retail Sales and the Unemployment Rate.

RBNZ Moves Up Monetary Policy Meeting to Make Emergency Rate Cut

“The Official Cash Rate (OCR) is 0.25 percent, reduced from 1.0 percent, and will remain at this level for at least the next 12 months.”

“The negative economic implications of the COVID-19 virus continue to rise warranting further monetary stimulus.”

“Since the outbreak of the virus, global trade, travel, and business and consumer spending have been curtailed significantly. Increasingly, governments internationally have imposed a variety of restraints on people movement within and across national borders in order to mitigate the virus transmission.”

“Financial market pricing has responded to these events with declining global equity prices and increased interest rate spreads on traditionally riskier asset classes.”

“The negative impact on the New Zealand economy is, and will continue to be, significant. Demand for New Zealand’s goods and services will be constrained, as will domestic production. Spending and investment will be subdued for an extended period while the responses to the COVID-19 virus evolve.”

“Several factors will continue to assist and support economic activity in New Zealand.”

“New Zealand’s financial system remains sound and our major financial institutions are well capitalized and liquid. The Reserve Bank is also ensuring that the banking system continues to function normally.”

“The Government is operating an expansionary fiscal policy and has imminent intentions to increase its support with a fiscal package to provide both targeted and broad-based economic stimulus.”

“The New Zealand dollar exchange rate has also depreciated against our trading partners acting as a partial buffer for export earnings.”

“And, the Monetary Policy Committee agreed to provide further support with the OCR now at 0.25 percent. The Committee agreed unanimously to keep the OCR at this level for at least 12 months.”

“The Committee also agreed that should further stimulus be required, a Large Scale Asset Purchase programme of New Zealand government bonds would be preferable to further OCR reductions.”

The Reserve Bank also decided to delay the implementation of controversial new capital rules which would have required the banks to hold more capital on their balance sheets.

This, the bank said would lead to another $47 billion in lending than would have been the case if the moves went ahead. Banks has long warned the move could tighten credit, especially in a time of economic strain.