Dollar touches fresh five-year low as traders price in more interest rate cuts
Kiwi touched 68.57USc, its lowest level since July 2010.
Kiwi touched 68.57USc, its lowest level since July 2010.
The New Zealand dollar hit a fresh five-year low as traders firm up expectations for more interest rate cuts following a weaker-than-expected gross domestic product report last week and as upbeat US economic data strengthens the case for US rate hikes in September.
The kiwi touched 68.57USc, its lowest level since July 2010, and was trading at 68.63USc at 8am in Wellington, from 69.14USc at 5pm yesterday. The trade-weighted index slipped to 71.52 from 71.79 yesterday.
The US dollar index, which measured the greenback against a basket of currencies, advanced after a report showed US sales of existing houses rose to their highest level since 2009, bolstering optimism about a recovery in the world's largest economy. Meanwhile, the kiwi is out of favour, after first-quarter GDP missed expectations last week, prompting traders to increase their bets for future interest rate cuts. Reserve Bank governor Graeme Wheeler cut the benchmark interest rate by a quarter point this month to 3.25% and traders are pricing in a 74% chance he will reduce the rate further next month, according to the overnight index swap curve.
"There is dollar strength across the board, and a continuation of the weak GDP theme from last week," said Tim Kelleher, ASB Bank head of institutional FX sales in New Zealand. "The trend is your friend, which is a weaker kiwi at the moment."
Kelleher said he estimated the target zone for the kiwi is between 67-69USc, compared with a 20-year average of 65.5USc.
Traders will be watching for a report on Chinese manufacturing, which is expected to show industrial production in the world's second biggest economy continued to contract in June.
The New Zealand dollar slipped to 60.53 euro cents from 60.66 cents yesterday on optimism Greek reform proposals may help the country clinch a deal with its creditors and avoid a debt default.
The local currency was little changed at 88.82Ac from 88.83Ac yesterday, weakened to 43.39 British pence from 43.47p, and declined to ¥84.66 from ¥84.83.
(BusinessDesk)