Dollar hits six-year low on dairy jitters

The New Zealand dollar dropped to a six-year low after a surprisingly sharp slump in dairy prices fuelled concerns about the broader economy.

The developments fuelled expectations the Reserve Bank will cut interest rates.

The kiwi fell as low as US65.08c, its lowest since July 2009, and was trading at US65.20c at 5pm yesterday from US65.92c at 8am and US67.05c on Wednesday.

The trade-weighted index dropped from 70.88 on Wednesday to to 69.26, its first time below 70 since June 2012.

Prices at the GlobalDairyTrade auction dropped to a six-year low because of continuing global oversupply and waning demand.

That raised fears about the effect on New Zealand's wider economy, and figures yesterday showing annual inflation of 0.3 per cent in the June quarter were seen as giving the Reserve Bank room to cut the official cash rate more aggressively than previously signalled.

Westpac bank economists predicted the rate would be at a record-low 2 per cent by the end of the year.