Dollar sinks below 74USc as rate cut expectations grow
Kiwi dropped to 73.85 US cents at 5pm in Wellington.
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The New Zealand dollar sank to its lowest level since March after retail spending figures added to speculation that the Reserve Bank will cut interest rates this year to lift demand and ensure inflation, currently weak, is consistent with its target
The kiwi dropped to 73.85 US cents at 5pm in Wellington, and earlier fell as low as 73.74 cents, the lowest since March 19, from 74.86 cents at the New York close on Friday. The trade-weighted index fell to 76.49 from 77.08 on Friday.
Kiwis' spending on credit and debit cards fell 0.8 percent in April, based on the core spending measure, snapping nine consecutive monthly gains. The data comes after labour market figures last week that showed wage inflation slowed in the first quarter. On April 30, the Reserve Bank said it may have to cut the official cash rate from 3.5 percent should demand and inflationary pressures track lower than would be consistent with its inflation target.
"The market is pricing in even more chance of Reserve Bank rate cuts," said Imre Speizer, a strategist at Westpac Banking Corp. "Last week's wage data was pretty weak and then today we had some weak retail sales data. Conditions under which the Reserve Bank said they could cut are slowly being ticked off."
The market is pricing in about an 85 percent chance for two rate cuts this year, while Westpac's official position from its economists is for a 40 percent chance, Speizer said.
The Reserve Bank's quarterly monetary policy statement and OCR review is scheduled for June 11. Speizer said Westpac doesn't expect a cut until September or October although "some are calling for a June cut."
The kiwi may trade between 72 US cents and 77 cents this week, according to a BusinessDesk survey of 12 currency advisers. Nine expect the kiwi to fall and three say it will probably remain largely unchanged. None expect it to increase. It was recently trading at 74.08 US cents.
The New Zealand dollar fell to 93.52 Australian cents from 94.19 cents on Friday. The local currency declined to 47.88 British pence from 48.04 pence. It fell to 66.24 euro cents from 66.45 cents on Friday and tumbled to 88.54 yen from 89.36 yen.
(BusinessDesk)
Jonathan Underhill
Mon, 11 May 2015
Mon, 11 May 2015
© All content copyright NBR. Do not reproduce in any form without permission, even if you have a paid subscription.
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Dollar sinks below 74USc as rate cut expectations grow
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