The New Zealand dollar took a dive this afternoon, as the market digested a ratings review by Standard & Poor's.
At 5pm the kiwi was fetching US71.13c, up from a session low of US70.90c, but down from US71.74c at last night's local close.
ANZ Investment Bank senior dealer Mark Elliott said on the face of things, S&P's report looked positive, with the agency reaffirming its New Zealand AA+/A-1+ foreign currency and AAA/A-1+ local currency ratings. But he said the body of the text was negative for the New Zealand dollar.
Mr Elliott said S&P said the stable rating reflected its expectations New Zealand's current account deficit would return to historical levels.
"The current account can't return to historical levels unless there is a depreciation of the currency. In other words they are saying the currency has to depreciate to underpin that rating, or the ratings will come under pressure," Mr Elliott said.
He said if the ratings came under pressure it would be a signal to the international investing community to exit New Zealand dollar investments, which would have the effect of depreciating the kiwi anyway.
The kiwi also slipped against its Australian counterpart, buying A94.84c at 5pm from A95.55c at the same time yesterday. In a widely expected move, the Reserve Bank of Australia today opted to leave its key interest rate unchanged at 5.5 per cent.
The market is now waiting to see if the Reserve Bank of New Zealand will also match expectations and hike the official cash rate by 25 basis points to 7.25 per cent tomorrow.
The following are Reuters currency rates:
5pm today 5pm Tuesday
NZ dlr/US dlr US71.13 US71.74
NZ dlr/Aust dlr A94.84 A95.55
NZ dlr/euro 0.6043 0.6091
NZ dlr/yen 86.00 86.84
NZ dlr/stg 40.91 41.21
NZ TWI 73.75 74.34
Australian dollar US74.97c US75.05c
Euro/US dollar US1.1772 US1.1780
US dollar/yen 120.94 121.02
- NZPA
<EM>Currency:</EM> Kiwi dives ahead of interest rate review
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