KEY POINTS:
The New Zealand dollar fell heavily against all the major currencies after the Reserve Bank today brought forward its easing cycle.
The tone of the bank's statement was seen as one of the most "dovish" issued by the bank and set the scene for a series of rate cuts ahead.
The kiwi immediately lost nearly one US cent and despite attempting to claw that back, ended the session on US74.30c from US75.56c yesterday.
Against the aussie, the kiwi fell to A77.51c from A77.99c yesterday and with falls against all the other currencies, the trade-weighted index ended on 66.28 from 67.13.
ANZ chief dealer Murray Hindley said traders could expect further weakness.
He said US investment houses were active sellers in a busy market.
For the moment, support was around US73.40-80c but he expects the kiwi to fall into the low US70s, possibly by the end of the month.
"Rallies will be sold into," he said.
With economists expecting the Reserve Bank to cut at every rate review this year, Mr Hindley said it could be the end of the carry trade - where traders borrow in low interest regimes like Japan and invest in high rate regimes like New Zealand.
Westpac head of financial markets Lloyd Cartwright said wholesale rates in the money market fell between 10 and 20 basis points but he thinks the carry trade will survive.
"There was a steepening of the yield curve or less inversion of the yield curve.
Dr Bollard's statement was"unequivocally dovish", with the market talking about the prospect of a sustained programme of cuts - a number of commentators talking about at least three more rate cuts this year.
"That is going to continue to put some pressure on the NZ dollar, but having said that the NZ dollar - even if we take 150 or 200 basis points off kiwi over the next six months - we're still going to have higher short-term interest rates than a significant number of our trading partners," Mr Cartwright said.
The carry trade argument, although less in favour of the NZ dollar, was still there, he added.
Reuters currency rates:
NZ dlr/US dlr US74.30c US75.56c
NZ dlr/Aust dlr A77.51c A77.99c
NZ dlr/euro 0.4735 0.4785
NZ dlr/yen 80.18 81.09
NZ dlr/stg 37.20p 37.91p
NZ TWI 66.28 67.13
Australian dollar US95.91c US96.90c
Euro/US dollar 1.5702 1.5790
US dollar/yen 107.83 107.28
- NZPA
