Forex New Zealand Dollar outperformed in the overnight trade following the RBNZ monetary policy announcement.
The central bank cut the benchmark cash rate to 2 percent, as widely predicted. As discussed previously, this put the focus on the statement accompanying the forex rate decision. On this front, the markets judged the central bank to be less dovish than expected.
The RBNZ said the annual inflation rate will begin recovering in the fourth quarter. Evidence on this front will not be available until early 2017, meaning the central bank may wait at least until then to reassess the need for further easing.
Officials also said buoyant house prices continue to pose financial stability risks and promised to seek advice on stronger macro-prudential measures to rein in activity.
Besides the time needed to move through consultation and on to forex policy implementation, Governor Graeme Wheeler and company will probably want a further wait-and-see period to see if the new scheme works before topping up stimulus.
Looking ahead, another quiet day on the European and US economic calendars seems likely to make for a consolidative tone.
The lull in top-tier forex news flow could make for atypically high sensitivity to headline risk however, increasing the near-term potential threat from seesaw volatility.
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