Kiwi falls to five-year low against US dollar

An expected interest rate cut by the Reserve Bank and a strengthening United States economy saw the New Zealand dollar fall near to a five-year low against the US dollar over the long weekend.

The kiwi was trading at US71.46c late on Friday afternoon but was sitting at US70.95c yesterday morning. It closed the day at US71.15c.

ASB senior economist Chris TennentBrown said there was reasonable economic data released in the US over the long weekend including consumption and expenditure figures and a manufacturing index.

‘‘There’s this view, which we tend to agree with, that a lot of softness in the data earlier in the year was temporary and now we’re getting into the second quarter data, it’s looking like activity is picking up,’’ he said.

In New Zealand the market was starting to focus on whether the Reserve Bank would cut the official interest rate on June 11, Tennent-Brown said.

‘‘The weakness in dairy and other inflation concerns are in the spotlight so some are thinking the Reserve Bank could cut rates as early as next week,’’ he said.

Tennent-Brown said ASB’s predictions were for the central bank to hold the official cash rate at 3.5 per cent and instead opt to monitor developments for another two months.

New Zealand’s interest rates have been higher than much of the world for the past three or four years due to a stronger economy and investment opportunities, he said. This in turn has supported a higher New Zealand dollar.

The general view was that low inflation was generally considered to be good for the economy but if it went too low it could impact on investment decisions, Tennent-Brown said.