NZ dollar TWI extends fall on prospect of RBNZ warning

The New Zealand dollar continued its decline on a trade-weighted basis after the Reserve Bank surprised traders saying it would give an updated assessment of the economy next week, stoking expectations it's laying the groundwork for a rate cut next month.

The trade-weighted index fell to 76.62 at 8am in Wellington from 76.81 yesterday and 77.57 before the Reserve Bank notice. The kiwi was little changed at 71.98USc cents from 72.04USc yesterday.

Traders are pricing in a 69% chance the Reserve Bank will cut the official cash rate to 2% at its next policy review on August 11 after the bank said it will "issue a brief update on its economic assessment" on July 21 because of the longer gap between meetings in the bank's new timetable. Before the notice traders had priced in a 40% chance of a cut.

The kiwi dollar has been trading above the central bank's projections as New Zealand's relatively attractive interest rates offer better returns than elsewhere, while its outlook for economic growth and stable government are seen as a boon in a volatile environment since the UK voted to ;leave the European Union.

"The natural conclusion the market took was that the bank was not happy with current market conditions," Bank of New Zealand currency strategist Jason Wong said in a note. "The weaker NZ dollar is expected to be sustained heading into next week's highly anticipated statement and, if the bank has learnt anything from previous communication missteps, then it should be able to deliver a further blow to the NZ dollar."

The kiwi fell to a two-week low 53.95 British pence from 54.56 pence yesterday after the Bank of England kept its benchmark rate unchanged at 0.5%, surprising markets which had been expecting a cut. Still, the central bank indicated a reduction was likely in August.

The local currency rose to ¥75.86 from ¥75.42 yesterday on the prospect of the Bank of Japan buying perpetual bonds with no maturity date, known as helicopter money, in an effort to overcome deflation.

The local currency edged down to 64.71 euro cents from 64.88 cents yesterday and fell to 4.8083 Chinese yuan from 4.8181 yuan yesterday. It dropped to 94.20Ac  from 94.69Ac yesterday.

(BusinessDesk)