Kiwi in a ‘dark place’, says economist

The New Zealand dollar is headed for a 1.9 per cent weekly fall against the greenback after the Reserve Bank surprised markets on Thursday by pushing out a projected rate hike for another year and saying a cut was still possible.

The kiwi traded at US66.10c at 5pm yesterday versus US66.13c at 8am and US66.73c on Thursday. It traded at US67.41c last Friday in New York. The trade-weighted index was at 71.43 from 71.80 on Thursday.

The kiwi dropped to its weakest since March 2016 after the RBNZ kept the official cash rate at 1.75 per cent and pushed out forecasts for a future hike by a year amid concerns about softer growth. News that Business New Zealand’s performance of manufacturing index worsened in July, dropping for the third month in a row and marking its second consecutive month below its longrun average, added to the sour mood.

“The kiwi seems to be in a bit of a dark place,” said Martin Rudings, senior dealer foreign exchange at OMF. That, coupled with a rally in the greenback, will “have the kiwi on its knees”. The US dollar gained in Asia, benefiting from euro and pound weakness.

Rudings said there is more downside to come for the New Zealand dollar as positive US data is expected to keep rolling out.

“You’d be swimming against the tide if you were doubting the performance of the US economy, at least in the short term.”

The local currency yesterday traded at A89.77c from A89.74c on Thursday. The kiwi fell to 4.5209 Chinese yuan from 4.5521 yuan on Thursday and dropped to 73.20 yen from 73.94 yen. It declined to 51.52 British pence from 51.83 pence and decreased to 57.37 euro cents from 57.48 cents. New Zealand’s two-year swap rate fell 4 basis points to 1.99 per cent while 10-year swaps were down 6 basis points to 2.86 per cent.