The New Zealand dollar edged higher as a surprise interest rate cut by the Federal Reserve weighed on the greenback.

The kiwi rose to 62.75 US cents at 5pm in Wellington from 62.66 cents yesterday. The trade-weighted index fell to 69.64 from 69.82.

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The greenback has dropped 0.9 per cent since Fed chair Jerome Powell said on Friday he was ready to act. The Fed then surprised investors overnight when it cut the federal funds rate half a percentage point to a 1 per cent to 1.25 per cent band to help insulate the world's biggest economy against a global slowdown. Central banks around the world have pledged to respond to the coronavirus outbreak, which has led to borders being closed and supply chains being disrupted.

New Zealand's Reserve Bank is widely expected to follow suit, although the central bank refrained from following the Fed's lead by cutting the official cash rate out of cycle.


Instead, the Reserve Bank noted that an upcoming speech by governor Adrian Orr on unconventional policy won't canvass current economic conditions. The central bank did say that it was prepared to support the financial system. It is next scheduled to review interest rates on March 25.

"Monetary policy itself only does a little bit in times like this and it's the other stuff that matters," said Imre Speizer, market strategist at Westpac New Zealand.

"Right here, the OCR is a limited tool and the more important stuff is the financial stability tools and fiscal stimulus."

The bid price on the two-year swap rate fell to 0.6307 per cent from 0.7436 per cent yesterday; the 10-year swaps dropped to 1.0225 per cent from 1.1100 per cent.

Speizer said the outlook for the kiwi dollar was unclear, with traders watching the pace of the outbreak outside China. New Zealand has confirmed its second case.

Investors would regain confidence once the number of cases had peaked, he said.

Local data today showed Auckland residential real estate sales rose in February, and that new build consents increased in January.

Australia's Reserve Bank cut its target cash rate a quarter-point to 0.5 per cent yesterday and said it was prepared to do more. Bureau of Statistics figures today showed the Australian economy grew 0.5 per cent in the December quarter, a faster pace than economists expected.


The kiwi fell to 94.98 Australian cents from 95.63 cents yesterday.

The local currency traded at 48.98 British pence from 49.03 pence yesterday, at 56.22 euro cents from 56.25, at 67.40 yen from 67.67, and at 4.3508 Chinese yuan from 4.3661.