The New Zealand dollar rose as high as 66 US cents overnight after Prime Minister John Key told reporters at his weekly post-Cabinet press conference that the local currency had fallen faster than expected.
The kiwi was trading at 65.67 US cents at 8am in Wellington, from 65.61 cents at 5pm yesterday and 65.12 cents immediately before the 4pm press conference. The trade-weighted index was at 69.97 at 8am from 69.88 at 5pm yesterday and 69.37 at 4pm yesterday.
The local currency spiked higher after Key noted the currency's steep decline and warned people about being too "gloomy" about the outlook, saying the New Zealand economy is "resilient". The kiwi then consolidated overnight and will likely remain around current levels until the central bank's official cash rate review on Thursday, traders said.
"I think he's correct that it's come a long way pretty quick and I think the market is in danger of trying to talk the economy into some sort of depression when it is just the dairy sector that is in trouble," said Tim Kelleher, ASB Bank head of institutional FX sales in New Zealand. "I think that's what he's reiterating and I think that's probably correct, that the market has probably got overtly bearish. Dairy is 20 percent of exports and there are lots of other good companies doing lots of other good things out there."
Some suggested Key's comments implied Reserve Bank governor Graeme Wheeler will cut the benchmark interest rate by just 25 basis points this week, with some speculating there is an outside chance of 50 basis points.