RBNZ cuts rates, signals more easing ahead – ING

The Reserve Bank of New Zealand delivered a widely expected rate cut and opened the door to further easing as trade tensions weigh on the outlook. With AUD and NZD under pressure, any sign of de-escalation between China and the US could offer much-needed relief, ING's FX analyst Francesco Pesole notes.

AUD and NZD struggle amid trade war pressures

"The Reserve Bank of New Zealand (RBNZ) cut rates by 25bp to 3.5% this morning, matching expectations. Guidance remained dovish, with policymakers signalling more room to cut rates as trade war effects unfold. We now think the RBNZ will take rates below 3.0%, probably to a 2.75% terminal rate, which is still above market pricing for 2.5%."

"The FX implications are very much secondary compared to the direction of trade news. AUD and NZD remain key laggards in G10 due to their proxy role for China. The People's Bank of China's (PBoC's) greater appetite for a lower yuan could take some pressure off the proxies, but it is not enough to trigger any strong rebound."

"AUD/USD has broken below the key 0.60 mark and NZD may follow by breaching the 0.55 support in the coming sessions. Given how far Antipodeans have fallen, they will be the biggest beneficiaries from any sign of de-escalation between China and the US."