New Zealand dollar skids to six-month low as central bank slashes rates

By Wayne Cole

SYDNEY, Oct 8 (Reuters) - The New Zealand dollar slid to a six-month low on Wednesday after the country's central bank cut its cash rate by an aggressive 50 basis points and left the door open to easing yet more as the economy struggles.

The Reserve Bank of New Zealand slashed rates to 2.5%, the lowest level in more than three years, sending bond yields tumbling to their lowest since September last year.

The kiwi dollar quickly sank 0.9% to $0.5747 NZD=D3, depths not seen since the tariff-induced market mayhem of April. It had already fallen 0.8% in the previous session after failing to clear resistance at $0.5844, and there is not much in the way of chart support until $0.5700.

The RBNZ committee did consider whether to ease by just 25 basis points but decided a larger move would lessen the risk of a prolonged economic slump. It also remained open to "further reductions" in the cash rate as needed.

Investors had been betting on an outsized easing since data last month showed the economy contracted a sharp 0.9% in the second quarter. 0#NZDIRPR

Markets are now nearly fully pricing in a quarter-point rate cut to 2.25% at the central bank's next meeting in November, with expectations suggesting rates could fall to 2.0% by 2026. Two-year swap rates NZDSM3NB2Y dropped 5 basis points to 2.5419%, their lowest level since early 2022.

"If Q3 inflation data due in a couple of weeks surprise to the upside, the RBNZ may call time on its loosening cycle," said By Marcel Thieliant, head of Asia-Pacific economics at Capital Economics.

"However, the fact it remains very concerned about downside risks to activity suggests further easing is forthcoming and we expect one final cut to 2.25% at its November meeting."

Investors are less sure if the Reserve Bank of Australia will ease again this year given inflation has surprised on the high side, leaving much riding on the third-quarter consumer price report due later this month. 0#AUDIRPR

Futures imply a 35% chance the RBA will cut its 3.65% cash rate at the next meeting on November 4, and a 56% probability of a move in December.

The Aussie eased 0.2% to $0.6565 AUD=D3, having fallen 0.5% overnight. Immediate support is seen at the recent low of $0.6521, while resistance lies between $0.6624 and $0.6629.

The currency fared better against an ailing yen, climbing 2.7% on the week so far to reach an 11-month top of 100.20 AUDJPY=R.