The New Zealand dollar (NZD), or kiwi, is set to register its biggest daily gain in a year, after the Reserve Bank of New Zealand maintained interest rates at their current level, a decision which caught investors off-guard.
The New Zealand dollar rocketed up by around 1.12 per cent on the US dollar in the afternoon GMT. The British pound/New Zealand dollar exchange rate was similarly rocked, dropping around -1.10 per cent.
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Banks and hedge funds had built up significant short positions on the kiwi, betting that the US-China trade war had damaged the economy thus making an interest rate cut inevitable.
However, the country’s central bank refrained from making it three interest cuts in a year and kept rates as they were. Not only did this decision cause a surge in the price of the NZ dollar but it also pushed short-dated bond yields and swap rates higher.
With growth in the New Zealand economy at a six year low almost all analysts predicted a cut of the benchmark rate from 1 per cent to 0.75 per cent.
The NZ dollar/Mexican Peso is the top rising currency pairing of the day so far, standing at 1/12.4505 a gain of 2.24 per cent.