NZ Earthquake & NZ Action

Monday's NZ earthquake has proven devastating in terms of magnitude at 6.6, near the previously hit area of Christchurch. The quake was initially reported as magnitude 7.6 with aftershocks heard in the capital city of Wellington. NZD has already gapped down sharply across the board in early Monday Pacific trade with AUDNZD printing as high as 1.0760. The total cost of damage from the 2010-2011 earthquakes was estimated at NZ$15 billion – about 8% of NZ's GDP, considered twice as large in proportion in relative terms to Japan's 2011 earthquake. The bulk of damage to residential and commercial property was covered by the nation's Earthquake Commission.

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Making an assessment about the NZD remains partly dependent on the extent of any subsequent aftershocks impacting urban areas as well as the subsequent response from the RBNZ. The Sep 2010 earthquake was extreme in scale rather than in casualties, but the more devastating damage to human lives and infrastructure did not occur until Feb 2011. The RBNZ responded with a 50-bp rate cut in March 2011.

How was 2011 different from today? The March 2011 rate cut was a one-time policy easing, occurring in the midst of a policy tightening cycle, which targeted mainly damage from the quake rather than a prevailing economic slowdown. Any policy action today would coincide with rates at a record low of 1.75% but with a trade-weighted NZ rate at 16% higher than in 2011. A new NZD trade has been issued earlier this evening to Premium subscribers.