By Swati Pandey
SYDNEY/WELLINGTON, Aug 11 (Reuters) - The New Zealand dollar jumped to its highest in over a year on Thursday as the country's central bank cut interest rates as widely expected, but stopped short of more aggressive action that some had wagered on.
The New Zealand dollar NZD=D4 briefly touched a high of $0.7351, a level last seen in May 2015. It was last up 1.3 percent at $0.7279.
Thursday's 25 basis points cut in the benchmark interest rate to 2.0 percent was fully priced in to the market, with some expectations of a half point move.
"They didn't go by 50 basis points, which was the view on the fringe," said RBC Capital Markets strategist Michael Turner.
The RBNZ said further policy easing "will be required" based on current projections and assumptions. It blamed unprecedented easing by central banks around the world for putting upward pressure on the kiwi dollar and making it harder to lift inflation domestically. RBNZ also lowered its projection for the 90-day bill rate to 1.75 percent, from 2.12 percent, causing some confusion in the market.
"That is consistent with a projection that the cash rate's terminal rate during this easing cycle will be either 1.5 percent or 1.75 percent," said Imre Speizer, a senior market strategist at Westpac.
"Markets appear to have expected even more than was priced in by swaps," he added. "We would expect the NZD to settle around $0.7250 once the initial froth has subsided."
New Zealand government bonds 0#NZTSY= eased a touch after the rate move, while bills 0#NBB: slipped as the market lengthened the odds on rates falling as far as 1.5 percent.
The AUD/NZD cross fell 0.9 percent after the RBNZ cut.
"We see this dip as a buying opportunity as the RBNZ has a much stronger easing bias, and is more likely to deliver another cut or two from here, compared with the 'reluctant cutter' RBA," said Annette Beacher, chief Asia-Pac Macro Strategist at TD Securities.
The Reserve Bank of Australia (RBA) trimmed its rate by a quarter point to 1.5 percent last week, but sounded in no hurry to ease further.
The Australian dollar AUD=D4 has risen more than 2 percent since the RBA's move on Aug.2. On Thursday, it climbed for a fourth straight day, adding 0.2 percent to stay above $0.7710.