By ELLEN READ
The dollar fell against the United States and Australian currencies after yesterday's surprise interest rate cut from the Reserve Bank.
The announcement pushed the kiwi as low as 55.15USc from 55.88USc before the cut and from 56.12USc at Wednesday's local close.
It recovered to 55.48USc by the local close, but dealers expected it to remain under pressure overnight.
The kiwi also lost heavily - and perhaps more importantly as it is our largest trading partner - against the Australian dollar, falling to 89.77Ac from 90.37Ac at Wednesday's close.
Alan Bollard's decision to cut the official cash rate to 5.5 per cent eroded the kiwi's yield advantage, one of its main recent drivers.
The kiwi has gained steadily over the past year as investors have been drawn to relatively high yields compared with other economies, where interest rates are at historical lows.
"However, the New Zealand dollar retains a 425 basis-point cash rate advantage over the US dollar, and with potential for cuts from the Bank of England, the European Central Bank and the US Federal Reserve in coming weeks, the spread is likely to remain substantial," Westpac currency strategist Jonathan Bayley said.
Westpac is picking the kiwi to sit at 60USc at the end of the year.
"However, with the first Reserve Bank cut delivered and more undoubtedly on the way, it will be more difficult for the [kiwi] to outperform the Canadian or the Australian dollars within the high-yielder bloc," Bayley said, adding that the bank's end-of-year kiwi/aussie forecast was 89Ac.
He said the kiwi stood out as having the most downside interest rate risk among the trio.
<I>Currency:</I> Dollar flinches at surprise cut
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