The New Zealand dollar fell to a nine-day low on growing expectations that the central bank will shift to an even more neutral stance at next Thursday's policy review and signal interest rates will be on hold for longer.
The kiwi traded at 73.99 at 5pm from 74.28 cents yesterday. The trade-weighted index was at 77.86 from 78.16 yesterday.
In its forecasts, the central bank has signalled that it expects to begin lifting New Zealand's record-low interest rates in September 2019. However, given weaker inflation data, softer housing and jobs data and the recent strength of the kiwi dollar "I think the market is leaning toward the idea that we might see the profile toward the end of the forecast period flattening out, ie a more neutral style policy stance coming through," said Robert Rennie, chief currency strategist at Westpac Banking Corp.
ANZ Bank chief economist Cameron Bagrie said he expects the central bank to keep rates on hold at 1.75 per cent "with the tone of the accompanying statement, projections and press confidence to reinforce the RBNZ's cautious, watchful and neutral stance." In fact, according to Bagrie "a case could be made for moving to an easing bias," given core inflation has softened, housing market momentum has slowed, financial conditions have softened, the dollar has strengthened and "global inflation has rolled over," he said.
Rennie said the kiwi is also losing ground on the back of some US dollar stability as US President Donald Trump's administration appears to be shifting its focus onto a tax plan. Investors will be keeping a close eye on jobs data out of the US overnight Friday.
Rennie said he is becoming "increasingly confident" the kiwi may have seen at least an "interim high" at 75.50 US cents but next week's monetary policy statement and comments from the central bank will be key.
The kiwi traded at 93.23 Australian cents from 93.33 cents yesterday, and at 4.9780 Chinese yuan from 4.9957 yuan.
The local currency traded at 55.96 British pence from 56.23 pence, ahead of the Bank of England's rate decision later in the global trading day. Sterling has been supported in recent weeks by expectations the bank might finally be getting ready for a hike, although Governor Mark Carney could be more cautious. The kiwi was down to 62.46 euro cents from 62.80 cents yesterday and traded at 81.90 yen from 82.34 yen.
New Zealand's two-year swap rate fell 2 basis points to 2.18 per cent while the 10-year swaps fell 4 basis point to 3.24 per cent.