KEY POINTS:
The New Zealand dollar yield story took a knock today in the form of a gasping 150 basis point cut in the Official Cash Rate to a historic low of 3.5 per cent.
The NZ dollar plunged after the 9am announcement from the Reserve Bank even though a big cut was expected.
The NZ dollar, which had been US53.72c in early morning trade, fell to US51.85c and then bumped along the bottom.
It was US51.95c at 5pm and a test at lower levels was expected in early European trade tonight.
"It is still contained in recent ranges though," said Lloyd Cartwright, head of financial markets at Westpac Institutional Bank.
He said the market was comfortable going into the announcement with short positions and was validated.
"But I think the fact the market was short has limited the downside a bit," he said.
Economists had mostly predicted a 100 basis point cut, but traders were expecting a bit more.
The US dollar rose against the yen after the Federal Reserve kept interest rates near zero and said it was prepared to buy long-term Treasury debt if that would help credit conditions.
The dollar strength helped keep kiwi under pressure.
Against the Australian dollar the NZ dollar was worth A78.50c at 5pm, down from A79.58c yesterday. Against the euro it was 0.3970 from 0.3999, against the pound it was 36.69p from 37.26p and it was 46.80 yen from 47.25 yen.
The trade weighted index stood at 52.10 at 5pm from 52.80 yesterday.
- NZPA
