The Reserve Bank of New Zealand has delivered its second consecutive rate cut citing downside risks to growth and inflation, but the kiwi dollar has rallied across the board as the central bank stance does not demand further depreciation in the currency.

The central bank on Thursday slashed the official cash rate (OCR) by 25 basis points to 3%, but NZD/USD strengthened to 0.6655 from the previous close of 0.6583 and compared to the six-year low of 0.6498 touched on 16 July.

NZD/JPY has risen to 82.48 after the rate cut from previous close of 81.62 and AUD/NZD slipped to 1.1117 from 1.1208.

The RBNZ monetary policy statements of late had been calling the NZ dollar as "overvalued" despite it getting weaker, saying the slide in commodity prices justify a weaker currency for the export-driven economy.

The 23 July statement said that "further depreciation is necessary" in the New Zealand dollar but it compares to the 10 June phrase of "a further significant downward adjustment is justified".

Last month's statement had also said that the kiwi dollar "remains overvalued" but the central bank dropped that phrase in Thursday's statement.

After the June rate cut, the NZD/USD pair fell sharply and broke through the 0.7000 support. It continued south to break below 0.6500 within about five weeks.

At this month's trough, the NZ dollar was down 26.5% against the greenback from the peak of 0.8838 touched 12 months ago. During the same period, the USD index rallied 22% and Brent crude for spot delivery plunged 50%.

By sounding less concerned about the need for further depreciation of the currency, the central bank has practically endorsed the recent statement of the government itself. New Zealand Prime Minister John Key had said last week that 0.65 is a "Goldilocks" level for the NZD/USD pair.

In addition, the apex bank has shown confidence that the slide in the currency will provide support to the economy.

"The New Zealand dollar has declined significantly since April and, along with lower interest rates, has led to an easing in monetary conditions. While the currency depreciation will provide support to the export and import competing sectors, further depreciation is necessary given the weakness in export commodity prices," RBNZ said.

Range-bound move

Meanwhile, the central bank has also said that a quick pass-through of the exchange rate depreciation should happen for inflation to get back to the target area.

This adds to the warning given in Thursday's statement that "at this point some further easing (in the interest rate) seems likely" as the bank may not tolerate significant upward correction in the local dollar.

In effect, this scenario should lead to a range-bound move in the NZ dollar, and charts suggest the same for NZD/USD as 0.6500-0.6800. An upward break could well invite some "verbal intervention" from the authorities.

At the same time, some more depreciation could be tolerated depending upon the external scenario and commodity price movements, in which case, 0.6420 is the level to watch ahead of 0.6200.