Kiwi sinks after veiled RBNZ threat to cut rates, drops against AUD on jobs data

The New Zealand dollar sank to a four-month low against the greenback after the Reserve Bank threatened to cut interest rates if the currency appreciates unreasonably and tumbled to a two-month low against the Australian dollar after unexpected jobs figures across the Tasman.

The kiwi fell to 81.74 US cents at 5pm in Wellington from 82.60 cents immediately before the RBNZ release and 82.50 cents yesterday. The local currency sank to 78.84 Australian cents from 79.33 cents before the jobs data, and 79.91 cents yesterday.

Reserve Bank governor Graeme Wheeler kept the OCR at a record low 2.5 percent for a 16th straight meeting, blaming the overvalued currency and deteriorating drought for "creating difficulty in much of the country".

If "overshooting" in the currency continues, it creates "scope for a reduction in the OCR", he told media in Wellington. He told politicians his view is that the currency is overvalued by between 10 percent and 15 percent.

"The kiwi's not going to go too far – sub-80 seems unlikely" with foreign investors looking for relatively safe, high yielding assets, says Tim Kelleher, head of institutional FX sales NZ at ASB Institutional.

The currency may trade between 81.25 US cents and 82.25 cents, he says.

Australian employment jumped by 71,500 in February, beating the forecast in a Reuters survey of just 9000 and the biggest increase in more than 10 years, according to the Australian Bureau of Statistics. The jobless rate held unchanged at 5.4 percent against expectations of a rise to 5.5 percent.

The Australian dollar jumped to $US1.0367 from $US1.0299 before the report was released.

Mr Kelleher says market pricing for more rate cuts by the Reserve Bank of Australia had been wound back after getting ahead of itself.

"It's boom or gloom over there," he says.

The kiwi traded at 904.67 Korean won per NZ dollar from 905.14 won yesterday after the Bank of Korea kept its seven-day repurchase rate at 2.75 percent, as Asia's fourth biggest economy contends with rising tensions with neighbouring North Korea and retail spending held back by elevated household debt.

The local currency fell to 78.39 yen from 78.91 yen yesterday. It slipped to 63.10 euro cents from 63.26 cents and dropped to 54.73 British pence from 55.21 pence.

The trade-weighted index dipped to 75.34 from 75.95.

The bank sees the currency staying above 75 on the TWI until the June quarter next year, having previously seen it falling below 73 by the end of this year.

(BusinessDesk)