The New Zealand dollar fell on speculation the government's measures to curb a rampant Auckland housing market, added to the Reserve Bank own efforts, could give the bank more room to cut interest rates.
The kiwi dollar was little changed at 74.35 US cents at 5pm in Wellington from 74.26 cents at 8am, and down from 74.72 cents on Friday in New York. The trade-weighted index declined to 76.30 from 76.63 last week.
Traders are pricing in 48 basis points of cuts to the 3.5 percent official cash rate over the coming 12 months after the government said it will tighten up on the taxation of property speculators, adding to measures announced by the Reserve Bank last week that it will impose tougher lending requirements for investors in the Auckland housing market.
Tepid inflation has meant the central bank has dropped its bias towards higher interest rates, though any move to ease has previously been seen as unlikely for fear of fuelling the buoyant Auckland property market.
"The kiwi had an early drop thanks to the government announcement with the view that that twin-pronged attack does signal pro-activeness and communication," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand in Auckland. "We know the RBNZ is worried about dairy and also thinks the New Zealand dollar is too high on a structural basis, is unjustified and unsustainable, so monetary policy has more room to move given these measures have been tackled."
