The New Zealand dollar is heading for a 1.7 per cent drop against the greenback after Reserve Bank governor Graeme Wheeler surprised markets on Thursday with an early interest rate cut and indicated more were to come.

The kiwi fell to US66.9c at 5pm yesterday from US68.12c a week ago in New York. It traded at US66.76c at 8am yesterday and US66.32c on Thursday. The trade-weighted index was at 71.59 from 71.27 on Thursday, and is heading for a 1.7 per cent decline on the week.

A BusinessDesk survey of nine analysts predicted it would trade between US65.50c and US69.50c this week, with five expecting the kiwi to gain, two betting it would fall and two anticipating it would stay largely unchanged.

NZ dollar gains ahead of Reserve Bank statement
NZ dollar gains vs British pound


Wheeler lowered the official cash rate a quarter point to a record-low 2.25 per cent and reduced the forecast track for the 90-day bank bill rate, implying another cut was to come. Traders had priced in an outside chance of a cut and most economists weren't expecting the bank to move so early after Wheeler's earlier reluctance to cut the rate as globally cheap oil sapped the headline inflation figure.

"The market's repricing where the RBNZ could go from here," said Philip Borkin, senior economist at ANZ Bank New Zealand. "There's a pretty strong signal that's putting pressure on the New Zealand dollar."

Borkin wasn't surprised to see the kiwi retrace some of Thursday's fall yesterday.

Fears about the Chinese economy and weak commodity prices have fuelled volatility in markets this year and prompted some to question whether the US Federal Reserve will deliver interest rate hikes as planned.

See live rates for the NZ-US $ below. Click for more information:NzForex Foreign Exchange Transfers

Government data yesterday showed New Zealand's food prices fell in February, led lower by cheaper fruit and vegetables, while Real Estate Institute figures showed Auckland's cooling property market was stoking demand elsewhere in the country.

The kiwi rose to 75.91 from 75.43 on Thursday and lifted to A89.35c from A88.66c. It edged up to 46.87 British pence from 46.71p and fell to 59.9c from 60.43c.