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Dollar falls to 3-month low as investors pull back bets on rate hikes

The New Zealand dollar fell to a three-month low as investors pulled back their expectations for future interest rate increases, decreasing the lure of the local currency.

The kiwi touched 84.37 US cents, and was trading at 84.50 cents at 8am in Wellington from 84.68 cents at 5pm yesterday when local banks were closed for the Queens Birthday public holiday.

The New Zealand dollar has declined 2.6 percent the past month as investors pared pack their expectations for the pace of interest rate increases on concern that falling commodity prices may dent economic growth after Fonterra Cooperative Group reduced its forecast payout to dairy farmers. Reserve Bank governor Graeme Wheeler has said he may intervene to sell the local currency should it fail to reflect softer commodity prices.

"The New Zealand dollar has come off the boil," said Peter Cavanaugh, client advisor at Bancorp Treasury Services. "The markets are digesting comments from the Reserve Bank and even though they expect them to raise the cash rate next week, they will probably tone down the rhetoric and slow down the path for rate rises. The market in March was confidently predicting a rate rise in July and now you would have to say that's much less likely."

The Reserve Bank is expected to increase the official cash rate a quarter point at its June 12 meeting. Traders have pulled back their expectations for interest rate hikes over the coming year to 75 basis points from 92 points a month ago, according to the Overnight Swap Curve.

Today, the focus will be on first quarter terms of trade data scheduled for release at 10:45am.

The New Zealand dollar slipped to 91.36 Australian cents from 91.45 cents yesterday ahead of the Australian Reserve Bank decision on interest rates this afternoon.

The kiwi was little changed at 62.14 euro cents from 62.13 cents yesterday, edged lower to 50.44 British pence from 50.57 pence and advanced to 86.54 yen from 86.38 yen.

(BusinessDesk)

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