The New Zealand dollar fell from a 12-month high as more traders bet there's still a chance of an interest rate cut by the Reserve Bank in August and the greenback strengthened.
The kiwi fell to US70.85c at 5pm yesterday, from US71.37c late on Thursday, having reached as high as US71.46c on speculation the Reserve Bank may be done cutting interest rates for now. The trade-weighted index fell to 75.56 from 75.74 on Thursday.
The New Zealand dollar is still heading for a 2 per cent gain over the week, having been given a leg up from weak US payrolls data last Friday and then a more substantial push higher on Thursday, when Reserve Bank governor Graeme Wheeler kept the official cash rate at 2.25 per cent.
As a result, the market reduced the chance of a rate cut in August but yesterday bets were again rising on concern the move was overdone. By yesterday afternoon a 50 per cent chance of a cut in August had been built into the overnight interest swap market, up from 44 per cent at the start of the day.
"Interest rates have just retraced a little from Thursday," said Martin Rudings, at OMF. "The higher the currency goes, the more likely farmers are to be squeezed and it is deflationary, so the Reserve Bank is then more likely to have to lower rates."
