Foreign Currency Exchange

As expected the RBNZ cut the benchmark interest rate by 1 point to 6.5% in order to stimulate growth. They have also indicated that there is likely to be a further cut of 0.5% before the end of December 2008.

The Kiwi reached fresh lows against a basket of major currencies including a six year low against Yen. This was mainly due to renewed risk aversion and the unwinding of carry trades.

The Kiwi is expected to remain near the recent lows against most major currencies, as investor attitude to risk continues to decide the direction of the markets. Therefore we are likely to see further weakness for the Kiwi until stock markets calm down.

The NZD/GBP cross is likely to remain between 2.8 to 2.9 although could drop further in the short to medium term.