Dollar touches 66USc after PM says it fell faster than expected

The New Zealand dollar rose as high as 66USc overnight after Prime Minister John Key told reporters at his weekly post-cabinet press conference that the local currency had fallen faster than expected.

The kiwi was trading at 65.67USc at 8am in Wellington, from 65.61USc at 5pm yesterday and 65.12USc immediately before the 4pm press conference. The trade-weighted index was at 69.97 at 8am from 69.88 at 5pm yesterday and 69.37 at 4pm yesterday.

The local currency spiked higher after Mr Key noted the currency's steep decline and warned people about being too "gloomy" about the outlook, saying the New Zealand economy is "resilient." The kiwi then consolidated overnight and will likely remain around current levels until the central bank's official cash rate review on Thursday, traders said.

"I think he's correct that it's come a long way pretty quickly and I think the market is in danger of trying to talk the economy into some sort of depression when it is just the dairy sector that is in trouble," said Tim Kelleher, ASB Bank head of institutional FX sales in New Zealand. "I think that's what he's reiterating and I think that's probably correct, that the market has probably got overtly bearish. Dairy is 20% of exports and there are lots of other good companies doing lots of other good things out there."

Some suggested Mr Key's comments implied Reserve Bank governor Graeme Wheeler will cut the benchmark interest rate by just 25 basis points this week, with some speculating there is an outside chance of 50 basis points.

"Market participants interpreted this to mean that the central bank would only lower rates another 25bp this year instead of the 50 that is priced into the market," Kathy Lien, managing director of FX strategy at BK Asset Management in New York, said in a note. " We would feel the same if these were Reserve Bank governor Wheeler's comments but they are not."

Still, ASB's Mr Kelleher said he didn't expect a 50 basis points cut.

"We really do think that there is no way they will go 50. That would be quite panicky and they have only ever done it in emergency settings before and this is not an emergency – it's just one part of the New Zealand economy struggling," Mr Kelleher said.

In New Zealand today, travel and migration data for June is published at 10:45am, credit card balances for the month are released at 3pm and the Reserve Bank head of prudential supervision Toby Fiennes is scheduled to speak on the bank's regulatory stocktake at about 5pm.

The New Zealand dollar slipped to 89.01Ac from 89.12Ac yesterday ahead of the release of the Reserve Bank of Australia minutes to its last meeting, and it advanced to ¥81.62 from ¥81.45 ahead of the release of the Bank of Japan minutes to its last meeting.

The local currency was little changed at 60.60 euro cents from 60.58 cents yesterday and advanced to 42.18 British pence from 42.06p.

(BusinessDesk)