Currency: NZ dollar slides on rate cut

The New Zealand dollar dropped a cent today when the Reserve Bank spelt out that interest rates would remain low until the latter part of 2010.

The bank cut the official cash rate (OCR) by half a percentage point to a record low 2.5 per cent and the dollar fell from US57.40c to US56.40c.

It then bounced but retreated to settle at US56.55c at 5pm from US56.58c at the same time yesterday.

As the New Zealand market was preparing to close the Wall Street Journal reported talks between the US Treasury Department and Chrysler LLC lenders aimed at keeping the carmaker out of bankruptcy broke down.

This helped boost the yen against the dollar.

But the news on the day for the New Zealand market was to do with central bank policy.

"Overall, it was a very dovish statement with some unusual things in it," Westpac senior market strategist Imre Speizer.

"The key thing was the explicit statement on how long the trough in the OCR will last," he said.

Other central banks have made similar statements but it was an unusual move for the Reserve Bank of New Zealand.

"The market has a lot more confidence that rates will be low and mortgage borrowers will see that, and it will probably induce them to remain on floating rates for some time," he said.

The US dollar had earlier soared against the yen after the Federal Reserve kept US interest rates on hold, as expected, and said the pace of the US economy's decline appeared to be slowing.

The kiwi was down against the Australian dollar to A77.95c from A79.45c yesterday, but rose to 55.07 yen from 54.75 yesterday.

The dollar eased to 0.4257 euro from 0.4295 yesterday, with the trade weighted index easing to 55.89 from 56.25 yesterday.

Currency rates:

NZ dlr/US dlr US56.55c US56.58c

NZ dlr/Aust dlr A77.95c A79.45c

NZ dlr/euro 0.4257 0.4295

NZ dlr/yen 55.07 54.75

NZ dlr/stg 38.18p 38.50p

NZ TWI 55.89 56.25

Aust dlr/US dlr 72.55c 71.18c

Euro/US dlr 1.3284 1.3174

US dlr/yen 97.36 96.80

- NZPA