Dollar falls below 80 Aust cents as drought weighs, RBNZ looms

The New Zealand dollar fell below 80 Australian cents for the first time since January as the drought across much of the North Island weighs on investor confidence in a local recovery and as the Reserve Bank prepares to review monetary policy tomorrow.

The kiwi fell as low as 79.79 Australian cents and traded at 79.91 cents at 5pm from 80.18 cents yesterday. It was little changed at 82.46 US cents from 82.50 cents at 8am and 82.44 cents yesterday.

The drought has stretched to another day and is increasingly weighing on recovery expectations already being hampered by a strong currency and slow Christchurch rebuild.

Finance Minister Bill English said yesterday the drought will probably impact on economic growth and lead to a lower tax take.

That comes ahead of central bank governor Graeme Wheeler's monetary policy review tomorrow, when he is expected to keep the benchmark rate unchanged at 2.5 percent.

"The market's going to be looking for him to play up the drought, but there's as many positives as negatives," said Mike Jones, currency strategist at Bank of New Zealand in Wellington. "The kiwi/Aussie had the double whammy from the New Zealand drought and Australian markets brightening as their economic outlook kind of steadies."

New Zealand food prices fell 0.3 percent last month, led by seasonally cheaper fruit and vegetables and discounted meat, according to government figures.

Food prices account for about 19 percent of the consumers price index, which was tracking below the central bank's target 1 percent to 3 percent band in the December quarter at 0.9 percent.

The kiwi fell to 78.77 yen at 5pm in Wellington from 79.55 yesterday. It had been at a four-year high against the yen amid growing expectations the next Bank of Japan governor will embark on a larger monetary easing programme.

The kiwi traded at 63.23 euro cents from 63.29 cents yesterday and fell to 55.18 British pence from 55.31 pence yesterday.

The trade-weighted index was at 75.93 at 5pm in Wellington from 76.09 yesterday. The Reserve Bank projected the TWI would average 73.1 in the March quarter, though the lowest it has traded this year was 74.24 on January 4.

(BusinessDesk)