KEY POINTS:
The New Zealand lost more than US1 cent today, and hit a nearly seven-year low against the Australian dollar, after the Reserve Bank said it could cut interest rates by the end of the year.
Central bank governor Alan Bollard held the Official Cash Rate at 8.25 per cent as expected, but surprised the market with a clear sign that interest rates would fall this year, possibly by September, despite inflation forecast to reach 4.7 per cent, well above the target band.
"We are now likely to be in a position to lower the OCR, later this year, which is sooner than previously envisaged,' Dr Bollard said in his quarterly Monetary Policy Statement.
That was due to a rapidly slowing economy.
After the statement, money markets rallied to price in at least two Reserve Bank rate cuts by the end of the year.
"I think this has probably come as a bit of a surprise to the market to be honest,' said Westpac head of financial markets Lloyd Cartwright.
"Whilst the market has probably expected easings some time this year, just the tone of the statement is certainly more doveish than the market had expected.'
Dr Bollard was comfortable with the kiwi's move today, but a fall to US73c or US71c could provoke a reaction, Mr Cartwright said.
By 5pm, the kiwi was at US76.57c from US77.78c late yesterday afternoon.
The kiwi recovered some ground after initially losing US1c, then hit the day's low of US76.56c after Asian trading began, said ANZ chief foreign exchange dealer Murray Hindley.
Against the Aussie, the kiwi was at A80.32c from A81.52c, and it also lost ground against the euro, yen and sterling.
On the trade weighted index, the kiwi fell to 68.62 from 69.68.
The US dollar rose against the euro and other major currencies today, extending gains made the previous day after Federal Reserve chief Ben Bernanke emphasised inflation concerns, yet another sign the central bank was probably finished with rate cuts.
Traders said the US dollar drew some of its strength from a large drop in oil prices this week from last month's record highs, helping it gain against the euro while investors awaited a European Central Bank policy meeting later in the day.
Currency rates:
5pm today 5pm yesterday
NZ dlr/US dlr US76.57c US77.78c
NZ dlr/Aust dlr A80.32c A81.52c
NZ dlr/euro 0.4971 0.5046
NZ dlr/yen 80.84 81.99
NZ dlr/stg 39.25p 39.69p
NZ TWI 68.62 69.68
Australian dollar US95.36c US95.57c
Euro/US dollar 1.5402 1.5446
US dollar/yen 105.55 105.19
- NZPA
