Kiwi drops more than 2% after central bank signals further rate cuts

 New Zealand one-dollar coins.
New Zealand one-dollar coins.PHOTO: BLOOMBERG

SINGAPORE (BLOOMBERG) - New Zealand's dollar declined more than 2 per cent against the US currency after the central bank signaled more interest rate cuts may be needed to boost inflation as economic growth slows.

The kiwi tumbled against all its major peers, approaching a six-year low reached last month versus the greenback, after Reserve Bank of New Zealand Governor Graeme Wheeler cut the official cash rate a quarter percentage point to 2.75 per cent on Thursday (Sept 10) and said "further easing in the OCR seems likely."

All 17 economists surveyed by Bloomberg correctly predicted the decision and swaps indicated a more than 90 per cent chance of a reduction.

The kiwi tumbled "less on the rate cut, which was universally expected, but the surrounding rhetoric and Wheeler comments," Ray Attrill, co-head of currency strategy at National Australia Bank Ltd. in Sydney, said by instant message.

New Zealand's dollar declined 2.1 per cent to 62.60 US cents as of 8:37 am in Tokyo. It reached a six-year low of 61.30 on Aug 24. Growth and inflation slowed this year amid a slump in prices for dairy products, the South Pacific nation's biggest export earner.

The kiwi was the worst performer among 10 developed-nation peers in the past three months, according to Bloomberg Correlation-Weighted Currency Indexes.

The RBNZ today forecast that the 90-day bank bill yield will fall to 2.6 per cent by the third quarter of 2016, 50 basis points lower than its previous projections in June. The outlook is seen as a guide to the direction of the cash rate.

Gross domestic product will expand 2.2 per cent in the first quarter of 2016 from a year earlier, the RBNZ forecast. That's less than the 3.3 per cent predicted in June. Annual growth will recover to 2.8 per cent in the first quarter of 2017, it said.