Much worse than expected March quarter retail sales was the catalyst for sending the kiwi dollar scurrying lower today.
It lost ground against all currencies, falling to an eight-month low on its trade-weighted index. The index closed on 67.97 from 68.42 at yesterday's close.
Against the US dollar,it dived half a cent in quick time on the retail sales announcement and ended the session on US75.65c compared with US76.27c at yesterday's close.
Traders and economists believe the economy now is in, or near, recession and the Reserve Bank may be forced to look through the fact that inflation is above 3 per cent, and start slashing interest rates.
Ninety-day bank bills fell another 5 basis points in the wholesale market. Money markets have virtually priced in a 25 basis point rate cut ahead of the Reserve Bank's June 5 review.
Traders said the prospect of slowing growth and falling interest rates would depress the currency on a trend basis.
Statistics New Zealand said retail sales fell a seasonally and inflation-adjusted 1.2 per cent in the March quarter, with vehicle sales bearing the brunt of the lurch down. Economists had on average forecast a 0.3 per cent fall.
"Things are going from hitting the skids to hitting a brick wall," said BNZ economist Craig Ebert.
"As weak as these are, the indicators heading into Q2 are even weaker. This is not a one-off adjustment, it's part of a trend."
Only a rebound in the appetite for risk and high yield in global market had prevented the kiwi falling faster.
It fell to A81.19c against the aussie dollar from A81.25c at yesterday's local close. The Australian dollar also fell sharply against the greenback, ending on US93.17c from US93.89c yesterday.
The US dollar was bolstered by a tame reading for US consumer inflation that buoyed equities and risk appetite.
Recent signs of stability in US share prices, higher US bond yields and a growing perception that the worst of the credit crisis may be over were supporting the dollar against the low-yielding yen.
