The New Zealand dollar fell as investors speculate that lower growth and inflation expectations and weaker dairy prices may slow the pace of interest rate increases by the Reserve Bank which has signalled it wants to move rates back to a more 'neutral' level.
The kiwi weakened to 84.20 US cents at 8am in Wellington, from 84.47 cents at 5pm yesterday but remained above its key 84 cent support level. The trade-weighted index slipped to 79.15 from 79.21 yesterday.
Read also:
• NZ's 'rock star' status dims
• Dairy prices slip to two-year low
• Budget surplus trimmed but intact
The New Zealand dollar has dropped about half a US cent since yesterday morning on speculation the Reserve Bank will pull back the pace and extent of future interest rate increases after the government yesterday trimmed its forecast for its 2015 budget surplus and reduced its projection for near-term economic growth, inflation expectations were lowered in the Reserve Bank's latest quarterly survey of businesses and after a small decline in the latest Fonterra Cooperative Group GlobalDairyTrade auction overnight.
"If we get more of the same, kiwi in its fragile state could fall further," said Peter Cavanaugh, client advisor at Bancorp Treasury Services. "On the other hand, the New Zealand dollar remains underpinned by the yield that it offers the world."