New Zealand cuts benchmark interest rate to lowest-ever 1%

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The New Zealand dollar fell 2% to $0.6378, a level not seen since early 2016 and the largest one-day percentage drop since late March. The measure spiked to 15.62% which is the fourth highest reading of the year and more than double its average over the last 12 months.

New Zealand's central bank governor said on Thursday that it was easily within the margins of error of the bank's forecasts that negative interest rates may be needed when trying to stimulate the economy.

However, he added the hefty 50 basis-point cut, which caught markets off-guard, reduced the possibility of having to use negative interest rates as it would stimulate the economy.

The New Zealand dollar fell more than a USA cent on the surprise, buying 64.03 cents at 5:29 Wellington, from 65.5 cents immediately before the statement.

The Australian dollar sunk close 48 U.S. cents in December 2008 as the GFC unravelled, marking the currency's low point since it was floated in late 1983.

In New Zealand, low interest rates and increased government spending will support a pick-up in demand over the coming year, it said.

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Euro has also benefited from alleviating US-China trade tensions following this week's eruption after Beijing limited the Chinese Yuan in what was perceived as a direct retaliation against US tariffs.

"Aussie" investors, however, will be looking further ahead to Friday, with Philip Lowe, the Governor of the Reserve Bank of Australia (RBA) due to give a speech.

The aforementioned actions from the RBNZ are the most drastic measures we've seen thus far from a major G10 central bank, nearly all of which have becoming increasingly dovish following the escalation of the US-China trade conflict. "Committee members were more concerned about global growth headwinds and the potential impact on the New Zealand economy via the trade channel".

This provided some uplift for the "Aussie" today following the currency's slump following the surprise interest rate cut from the Reserve Bank of New Zealand (RBNZ), which saw the NZ central bank cut its interest rate to 1% instead of the expected 1.25%.

The Reserve Bank released its latest quarterly monetary policy statement on Wednesday. "In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets". "Given the Committee's clear willingness to reduce rates, and our view that there is some further economic softness to come in the near term, we now expect another 25bp cut in November". Business and consumer confidence have also sunk, painting a gloomy outlook.

In response, traders ratcheted up bets on the neighboring Reserve Bank of Australia cutting its own rates in September, with swaps shifting to price in a 70% chance of a cut, from 45%.