The New Zealand dollar fell as investors pulled back their expectations for future interest rate hikes as they weigh weaker commodity prices and a slide in business confidence.
The kiwi dropped to 84.71 US cents at 8am in Wellington, from 84.80 cents at 5pm yesterday. It touched a low of 84.49 US cents, a level not seen since March 12, before the central bank started hiking interest rates on March 13. The trade-weighted index slipped to 79.07 from 79.18 yesterday.
New Zealand's Reserve Bank has raised the benchmark interest rate twice this year and signalled further hikes are in the pipeline. Investors are pulling back their expectations for rates to rise in the near term on concern about the effect of falling commodity prices on the economy, after Fonterra Cooperative Group pulled back its forecast payouts to farmers following weaker dairy prices, and after business confidence fell for a third month.
"The futures market is now taking off two rate hikes at the front end of the curve," said Martin Rudings, a senior adviser at OMF. "The kiwi essentially was bought up on all those rate hikes and if you take half a per cent off you have got to consider its correction is appropriate for that."
Investors who bought the kiwi betting it would rise as interest rates went up, known as a 'long' bet, are now selling the currency, Rudings said.