The New Zealand dollar touched a fresh two-year low after the central bank kept rates on hold and the market began to price in a possible cut.

The kiwi traded at 67.80 US cents as at 5pm in Wellington versus 67.91 cents at 8am and 68.17 late yesterday. It touched a low of 67.67 cents earlier in the day. The trade-weighted index was at 72.61 from 72.77.

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"The official cash rate will remain at 1.75 per cent for now. However, we are well positioned to manage change in either direction – up or down – as necessary," said Reserve Bank governor Adrian Orr in the one-page statement.

While the statement was very similar to what the Reserve Bank said in May, several economists now see the central bank remaining on hold for longer and also said there was potential for rates to ease.


"We also see growing risk that the next move may be a cut rather than a hike," in particular as business confidence remains weak and global trade tensions escalate, said ASB Bank chief economist Nick Tuffley. ANZ Bank New Zealand senior economist Liz Kendall said while she expects rates to eventually rise "if conditions deteriorated significantly, a cut could eventuate quite rapidly."

Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, said the market is now pricing in the chance of a rate cut this year, although it is very slim. He said the kiwi continues to be weighed down by growing signs that China will manage its currency to cushion its slow growth, in particular as it faces a potential trade war with the US.

"It just can't rally ... emerging markets are still getting hit, the Chinese yuan is getting hit and the US dollar is strong," said Kelleher. He said 67.50 US cents is a key support level but it's starting to look oversold and said that all it will take is for the Federal Reserve to try to jawbone the US dollar lower for it gain quite sharply.

The kiwi fell to 92.14 Australian cents from 92.36 cents yesterday and declined to 4.4842 Chinese yuan from 4.4961 yuan. It dropped to 74.79 yen from 74.98 yen yesterday and traded at 58.64 euro cents from 58.50 cents. The kiwi traded at 51.72 British pence from 51.55 pence yesterday.

New Zealand's two-year swap rate declined 4 basis points to 2.15 per cent while 10-year swaps fell 4 basis points to 3.02 per cent.