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NZ dlr hits 6-mth low on Aussie as RBNZ talks sub-zero rates

Published 13/05/2020, 03:23 pm
© Reuters.
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By Wayne Cole

SYDNEY, May 13 (Reuters) - The New Zealand dollar slid on Wednesday after the country's central bank doubled the amount of bonds it was buying and opened the door to negative interest rates, sending long-term bond yields to all-time lows.

The kiwi dollar dropped almost 1% to $0.6014 NZD=D3 , leaving behind Monday's $0.6157 top and threatening chart support around $0.5995. A break there would open the way to support at $0.5912 and $0.5844.

It suffered even more on the Australian dollar, which jumped 1.2% to a six-month high at NZ$1.0776 AUDNZD= reflecting the Reserve Bank of Australia's (RBA) stated aversion to ever taking its rates negative.

That in turn helped the Aussie hold steady on its U.S. counterpart at $0.6474 AUD=D3 .

Cementing its reputation for aggressive policy action, the Reserve Bank of New Zealand (RBNZ) doubled the amount of government bonds it plans to buy to NZ$60 billion ($36.06 billion) and said it would consider expanding the assets it buys, including foreign assets. kiwi dollars to directly buy foreign assets would likely put downward pressure on the currency and could be seen as a form of intervention by other countries.

The RBNZ also said it had asked local banks to be operationally ready by the end of the year should it decide to take the official cash rate (OCR) below zero.

"The RBNZ is aiming for a 'least regrets' monetary policy response that delivers as much monetary stimulus as possible, as early as possible," said Westpac's NZ chief economist Dominick Stephens.

"The RBNZ clearly left the door open to a negative OCR in the future," he added. "We feel comfortable maintaining our forecast that the OCR will drop to -0.5% in November."

The market responded by pricing in a further 25 basis point cut in rates to 0.0 by February 2021, and a risk of negative rates afterward. RBNZWATCH

Yields on 10-year bonds NZ10YT=RR dived 11 basis points to a record low of 0.515%, leaving them far below Australia's 10-year yield of 0.959% AU10YT=RR .

While the RBA has also cut rates to 0.25% and launched a major bond-buying campaign, it has so far ruled out taking rates under zero.

It has also been restrained in the amount of bonds it buys, particularly at the longer end of the yield curve, widening the spread over New Zealand debt.

Not that the Australian bond market has needed extra buying from the RBA given the strength of investor demand. The government on Wednesday sold a record A$19 billion of a new 2030 bond, drawing bids worth a cool A$53.5 billion.

The 10-year bond future YTCc1 edged up 1 tick to 99.0600.

($1 = 1.6639 New Zealand dollars) (Editing by Anil D'Silva)

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