The Reserve Bank of New Zealand cut the official cash rate (OCR) to 2.5 per cent and hinted that the cost of borrowing could fall even further. At the same time, the central bank warned households that increased spending on the back of rising house prices could force up the cost of mortgages. The benchmark interest rate strongly influences the interest rates on deposit and mortgages.
The NZD rose despite the rate cut because RBNZ said the inflation targets are being reached without problems so no further cuts were likely.
Economic growth in New Zealand slowed in 2015 while record net migration helped boost unemployment as less jobs were created.
According to Reserve Bank Governor Graeme Wheeler , the economy was expected to pick up in 2016 but a recent rise in the kiwi dollar was not helping to sustain growth. With inflation below the 1-3 per cent range the Reserve Bank would like to reach, the cut in interest rate is an attempt to drive the kiwi dollar lower and stimulate spending through cheaper borrowing costs.
In the meantime, the Australian dollar soared after an unexpected increase in jobs there surprised investors. The Australian dollar reached a high of $0.7333, down from the previous session's two-week low of $0.7169. It last stood at $0.7291, up 0.9 percent.
Euro Down
The euro edged down about 0.1 percent to $1.1009 but remained above the $1.10 level, helped by a central banker's recommendation that markets had been depending on too much stimulus from the European Central Bank.
The common currency hit a one-month peak of $1.1044 on Wednesday, extending last week's 2.8 percent short-covering rally after the ECB fell well short of delivering the aggressive easing many investors had anticipated.