Dollar falls below 70USc for the first time in almost five years after Reserve Bank cut

The New Zealand dollar fell below 70USc for the first time in almost five years after the Reserve Bank began cutting interest rates earlier than some had expected yesterday.

The kiwi touched 69.65USc overnight, the first time it has fallen below 70USc since September 1, 2010, and was trading at 70.18USc cents at 8am in Wellington, from 70.17USc cents at 5pm yesterday. The trade-weighted index edged up to 73.21 from 73.12 yesterday and 74.99 immediately before the Reserve Bank's announcement.

The New Zealand dollar tumbled yesterday after Reserve Bank governor Graeme Wheeler cut the benchmark interest rate by 25 basis points to 3.25%. The market was divided ahead of the move on whether Wheeler was likely to reduce rates as early as this month's meeting with just six of 16 economists predicting the move. Now the easing cycle has begun, speculation is turning to how many more cuts Mr Wheeler may have planned.

"Now the bank has chosen to start an easing cycle, we do not believe yesterday's cut will be a 'one-off,'" Bank of New Zealand senior market strategist Kymberly Martin said in a note. "We expect a followup cut at the next meeting in July and see around a 50% chance of a further cut in September.

"The New Zealand dollar will probably continue to lick its wounds today."

BNZ has lowered its forecast for the local currency to 68USc by the end of the year, from a previous expectation of 70USc, and expects the kiwi to be trading at 66USc by the end of 2016.

In the near term, the kiwi has support at 69.50USc and faces resistance at 70.50USc, BNZ says.

In New Zealand today, May data is scheduled for release on food prices and manufacturing.

In the US, the focus will be on a consumer confidence report after buoyant retail sales data for May was released yesterday.

After its slump during the day yesterday, the New Zealand dollar consolidated against most major currencies overnight.

The kiwi edged up to 90.37Ac from 90.31Ac yesterday, advanced to 62.27 euro cents from 62.08 cents, slipped to 45.20 British pence from 45.28p and increased to ¥86.63 from ¥86.45.

(BusinessDesk)