Kiwi’s drop pleases

The New Zealand dollar is down almost US4 cents in just over a week, back to levels seen at the start of the year, bringing some relief to exporters and the Reserve Bank.

Some economists have recently suggested the Reserve Bank will cut official interest rates next month, given a big rate cut in Australia and higher unemployment in New Zealand but others say that is still a low probability.

One bank economist said yesterday there was a 20 per cent chance of a cut, although market prices suggested it was almost a done deal in the coming months.

The central bank has been worried about the high currency, which was till recently unmoved by falling world commodity prices or attempts by Reserve Bank governor Alan Bollard to get the currency down.

The currency traded at US78.5 cents yesterday, at almost its lowest levels since the start of the year and down from more than US82C at the end of April. The kiwi is also down to 48.6 British pence from about 50p a week ago.

‘‘The Reserve Bank will take some comfort that the New Zealand dollar is starting to trade a bit more in line with economic fundamentals,’’ ANZ Bank chief economist Cameron Bagrie said. However, the dollar was falling because overseas bank funding markets were becoming ‘‘more difficult’’ and commodity prices had fallen and that was not welcome.

The dollar was starting to act as a ‘‘safety valve’’ for the economy, Bagrie said. As a result the Reserve Bank would feel more comfortable with interest rates on hold.