New Zealand dollar dropped to a 15-month low against the Canadian dollar

The dollar fell to 87.90 Canadian cents as at 8am, the lowest since May last year. Photo / 123RF

The New Zealand dollar has dropped to a 15-month low against the Canadian dollar after the Bank of Canada unexpectedly hiked its benchmark rate.

The kiwi also declined against the greenback and the euro.

It fell to 87.90 Canadian cents as at 8am in Wellington, the lowest since May 2016, from 89.57 cents late on Wednesday. It fell to US71.90c from US72.25c .

The Canadian dollar soared, reaching a two-year high against the greenback, after Bank of Canada raised its overnight lending rate by 25 basis points to 1 per cent.

The Canadian hike "surprised the market with respect to timing", Bank of New Zealand currency strategist Jason Wong said.

The Bank of Canada had "tried to hose down expectations of further tightening by citing risks including continued excess capacity, subdued wage and price pressures, geopolitics, the higher Canadian dollar and elevated household indebtedness, but this didn't prevent the CAD surging further ahead", he said.

The kiwi fell against the US dollar after US President Donald Trump agreed a deal with congressional leaders, including Democrats to extend the US debt limit until December 15.

The greenback strengthened after reports of Trump's deal, which would avoid a default on US government debt if approved by Congress and would ensure relief funding was available for victims of Hurricane Harvey.

Meanwhile, Hurricane Irma is bearing down on Florida.

With no economic news due out in New Zealand on Thursday, traders may watch for July retail sales and trade in Australia.

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The kiwi fell to A89.93c from A90.52c on Wednesday when figures showed the Australian economy grew 0.8 per cent in the second quarter.

The trade-weighted index dropped to 74.98 from 75.42 late on Wednesday.

The kiwi traded at 78.59 yen from 78.53 yen on Wednesday and slipped to 60.35 euro cents from 60.64 euro cents.

It fell to 55.13 British pence from 55.43 pence and declined to 4.6900 yuan from 4.7226 yuan.