Everyone who checked the AUDNZD today saw a big gap in price action and everyone who decided to take a closer look at the New Zealand Dollar will also see similar moves. While some may be shocked about this move, the AUDNZD gaped up by over 300 pips during the Asian morning trading session, but if you take a look at what happened fundamentally the picture will clear up. Remember that panic is never recommended.
The biggest reason for the move in the New Zealand Dollar, the primary factor for the big 300 pips gap in the AUDNZD, was delivered by the Reserve Bank of New Zealand which shocked markets with an unexpected interest rate cut of 0.25%. This took their benchmark interest rate down from 3.50% to 3.25%. Economists did not expect an interest rate cut and thought the RBNZ would not act which explains the big moves in the New Zealand currency.
The interest rate cut by the RBNZ signals deeper economic issues and concerns than many have previously accounted for. New Zealand does have the highest interest rates in the developed world and despite the 0.25% cut in interest rates it remains at the top ahead of other central banks. The Reserve Bank of Australia signaled that it may not cut interest rates further after the historic low of 2.00%. This is an interesting fact for all forex traders interested in a nice carry trade; the EURNZD offers an even better opportunity.
A gap in price action is often closed over the next few trading sessions so today’s 300 pips spike does offer some nice trading opportunities. Adding to the sell-off in the New Zealand Dollar was a report released on the New Zealand housing market. REINZ House Sales rose by only 21.6% in May as compared to May 2014. While it was a nice increase it was significantly below the 27.6% increase reported in April.
Fueling the gap in the AUDNZD was also the report on the Australian labor market which performed stronger than economists were looking for. The Australian economy added 42,000 jobs in May, almost three times more than the 15,000 jobs economists expected. This is a solid turnaround from the 13,700 jobs which were lost in April. The unemployment rate dropped to 6.0% which was also better than the 6.2% expected.