NZ dollar slumps to 4-year low

The New Zealand dollar tumbled this week after Reserve Bank Governor Graeme Wheeler's statement.

The New Zealand dollar is headed for a 2.1 per cent weekly decline against the US dollar, having hit a four-year low after the Reserve Bank on Thursday removed its bias for higher interest rates, saying the benchmark rate could go up or down.

The kiwi was at US72.80c at 5pm in Wellington, having touched a low of US72.28c yesterday morning, and from US74.36c at 8am on Monday. The trade-weighted index declined to 75.54 from 76.92 at the start of the week.

The New Zealand dollar tumbled this week after Reserve Bank Governor Graeme Wheeler's statement on Thursday morning that while he wasn't changing the 3.5 per cent benchmark rate, the future direction could be up or down as he monitored economic data.

Traders began to price in the chance of an interest rate cut, sending the kiwi sharply lower.

"The RBNZ was a bit more dovish than the market expected," said Martin Rudings, senior foreign exchange dealer at OMF.

"Now the market is pricing in the chance of rate cuts in New Zealand and that's caused the kiwi dollar to come off because before that we were looking at the next move being a rate hike.

"That turnaround in thinking means a readjustment in the currency has to take place."

Rudings said while the currency may consolidate after the steep decline, he expects it to fall to the mid-60 US cent level during the year.

Fonterra Co-operative Group's announcement on Thursday that it expected lower milk volumes due to dry weather also weighed on the market because of concerns about the potential flow-on effect to GDP, Rudings said.

Next Tuesday, all eyes will be on the Reserve Bank of Australia's meeting to see if it cuts its benchmark rate or waits until its March meeting.

The New Zealand dollar slid to A93.48c from A94.12c at the start of the week, weakened to 64.27c from 66.47c, slipped to 48.30p from 49.58p and dropped to 85.91 from 87.45.

-BusinessDesk