KEY POINTS:
The dollar fell to its lowest level against the greenback in two years yesterday after the Reserve Bank cut the official cash rate by 0.5 per cent to 7.5 per cent.
The move surprised economists who had widely expected the rate to be cut by 0.25 and within an hour of the announcement the dollar had fallen from US66.35c to US65.34c. It continued to fall throughout the day and in trading last night dropped to US64.60c.
ANZ head of markets John Body described it as a "pretty dramatic drop".
He said the second cut in a matter of six weeks meant the dollar had now become a lot less attractive to carry-trade investors.
Investors would also be thinking more about what it meant for future cuts.
"If the Reserve Bank can cut by 50 once, it becomes easier for it to do it again next time."
He said that between now and October the market would look at the data and price a 50-point cut into the next monetary policy statement and "that will keep the kiwi under pressure".
Body predicted the dollar could go as low as US62c.
But he believed it would strengthen back up to the late 60s by the end of the year.
"We are very unlikely to see the economy in decline by the end of the year."
The official cash rate cut also saw the sharemarket rise strongly in early trading with the benchmark NZX-50 up 1.25 per cent to 3385.71 by just after 10am. But it fell back in the second half of the day to close down 0.31 per cent on 3333.54.
