Unexpectedly Dovish RBNZ Meeting Drags New Zealand Dollar Down

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  • New Zealand Dollar Slumps as RBNZ Signals Interest Rate Cut – Investors spooked by prospect of fresh record low in interest rates
  • Narrowed Trade Deficit Encourages US Dollar Rally – USD exchange rates benefit from market risk aversion
  • Pound Shrugs Off Surprise Retail Sales Drop – Markets hopeful of Brexit progress as Conservative MPs granted free vote
  • Latest Signs of ECB Dovishness Weigh on Euro – Confidence in Eurozone outlook continues to deteriorate

Australian Dollar Softens as Global Market Tensions Linger

The mood towards the Australian Dollar soured yesterday as markets lapsed into a fresh bout of risk aversion. With various central banks around the world adopting an increasingly dovish outlook AUD exchange rates were left on a weaker footing. As the odds of a Reserve Bank of Australia (RBA) interest rate cut continued to increase the appeal of the Australian Dollar naturally diminished, also falling foul of a recovering US Dollar.

As long as worries over the outlook of the global economy persist this is likely to keep the Australian Dollar on the back foot.

Retail Sales Decline Fails to Dent Pound

The UK economy showed fresh signs of weakness last night as March’s CBI reported retail sales index disappointed forecasts, revealing a surprise slump from 0 to -18. As UK consumers appear to have started reining in their spending, likely in response to Brexit-based uncertainty, confidence in the wider economic outlook naturally diminished. However, with Conservative MPs granted a free vote on the various alternatives to Theresa May’s rejected Brexit deal markets remain hopeful of a potential breakthrough.

If the odds of a no-deal Brexit fade further today GBP exchange rates look set to make fresh gains.

Euro Remains Under Pressure as ECB Dovishness Persists

Comments from European Central Bank (ECB) President Mario Draghi prompted the Euro to slump once again. As Draghi expressed a willingness to help stimulate the Eurozone economy this paved the way for a fresh round of monetary loosening, leaving the single currency under pressure. With the ECB likely to maintain its dovish policy bias for the foreseeable future EUR exchange rates could struggle to recover their lost ground.

However, the Euro could find a rallying point tonight if the latest German consumer price index data points towards an uptick in inflationary pressure.

Narrowed Trade Deficit Boosts US Dollar

USD exchange rates took encouragement from news that the US trade deficit had narrowed in January, falling from -59.9 billion to -51.1 billion. This improvement helped to ease market worries over the current health of the US economy, even though global trade tensions appear unlikely to diminish in the near future. A general increase in market risk aversion also helped to fuel demand for the US Dollar as investors piled into the safe-haven asset.

Confirmation that the US economy lost momentum in the final quarter of 2018, however, could expose USD exchange rates to fresh selling pressure tonight.

Canadian Dollar Lacks Support amid Risk Aversion

The increasingly dovish outlook of central banks around the world put fresh pressure on the Canadian Dollar, with the Bank of Canada (BOC) still looking set to maintain a similar stance. A surprise increase in US crude oil inventories also dented CAD exchange rates, with global supply still failing to decrease as markets would like. All in all, this left the risk-sensitive Canadian Dollar generally lacking in support.

Ahead of Friday’s gross domestic product data the appeal of the Canadian Dollar is unlikely to see any significant improvement.

Unexpectedly Dovish RBNZ Drives New Zealand Dollar Plunge

Investors were caught off guard by the dovishness of yesterday’s Reserve Bank of New Zealand (RBNZ) policy announcement. As the central bank indicated that its next interest rate move is likely to be down this prompted NZD exchange rates to plunge. With the RBNZ no longer adopting a neutral policy outlook there was little incentive to favour the New Zealand Dollar.

Unless the ANZ activity outlook index shows a significant upside surprise NZD exchange rates look set to remain on a bearish trend today.

Data Releases

March 28th 11:00    NZD    ANZ Activity Outlook (MAR)    
March 28th 23:30    USD    Gross Domestic Product Annualised (QoQ) (4Q F)    2.4%
March 29th 00:00    EUR    German Consumer Price Index (YoY) (MAR P)    1.5%

Post by TorFX

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