RBA rate cut, NZ trade terms plunges Kiwi’s currency

RBA keeps interest rate (cash rate) unchanged at 2.0% which is as per forecasts. The cash rate is the rate charged on overnight loans between financial intermediaries, is determined in the money market as a result of the interaction of demand for and supply of overnight funds.

On the flip side the New Zealand trade terms rose by 1.5% in Q1, similar to market forecasts. The result was broadly in line with the market's forecast (and our own) of a 1.7% rise, and the New Zealand dollar was unmoved after the release.

The fall in export commodity prices over Q1 has been overshadowed by cheaper imported oil. The Q1 figures were dominated by a steep drop in the price of imported fuel. This will likely prove to be a temporary diversion as the global oil prices have subsequently regained some of their lost ground.

New Zealand's terms of trade remains in a cyclical downturn. Even so, it is on track to settle at a high level relative even to recent history. Turning to the details, the rise in the terms of trade consisted of a 3.7% fall in export prices, more than offset by a 5.1% fall in import prices. The latter figure was dominated by a 29% fall in the price of petroleum products, which account for about 15% of New Zealand's imports.