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Kiwi reaches new low

Posted on 02 July, 2015

The New Zealand dollar touched its lowest level in more than five years on July 2 against the greenback and the pound, and its lowest against the Australian dollar in a year-and-a-half after signs the economy is slowing. This morning the kiwi’s cross-rates were 66.26 with the US dollar, 43.09 against the pound, 82.76 with the yen and 88.05 with the Aussie. It comes amid business confidence turning pessimistic for the first time in four years. Meanwhile, growth in building consents stalled and farmer confidence slumped to its lowest level in a decade amid low dairy prices. Traders are pricing in an 84 per cent chance that Reserve Bank governor Graeme Wheeler will reduce the benchmark interest rate at this month’s meeting, according to the overnight index swap curve, and Deutsche Bank believes a further two cuts are likely in September and October to take the benchmark rate to 2.5 per cent. “Deutsche Bank has been very aggressive in its call for rates to be at 2.5 per cent by the end of the year, which is another 75 basis points worth of cuts,” says Tim Kelleher, ASB Bank’s head of institutional FX sales in New Zealand. “It puts us back on a rate-cut path. Because of that and lower yield, the money will go to markets with have got more liquidity for the same value. We have certainly seen some pretty strong selling of kiwi.” Kelleher notes the 20-year average for the kiwi was 65.50 US cents.