New Zealand dollar hits five-year low in European trade

The New Zealand dollar slumped 2.6 percent to a five-year low against the US dollar on Thursday, after the Reserve Bank of New Zealand cut interest rates and suggested more easing may follow. The kiwi was on track for its biggest daily loss in four years, dropping to $0.6998 in early London trade, as the RBNZ began an easing cycle just as the Federal Reserve looks to raise US rates, possibly later this year.
"The RBNZ move was a surprise and has taken a toll on the kiwi," said Geoff Yu, currency strategist at UBS, London. The US dollar rose against a basket of currencies before US retail sales data are released later in the day, and regained some poise against the yen.
It had lost 1.3 percent on Wednesday - its biggest one-day decline in six months - as investors unwound short yen positions following Bank of Japan Haruhiko Kuroda's comment that the yen was already "very weak".
The dollar traded at 123.65 yen, up 0.8 percent on the day. The euro rose 0.2 percent to 139.25 yen, following its biggest drop in over two months on Wednesday, as market participants tried to assess whether Kuroda's remarks were an observation or a warning.
Government and central bank officials said Kuroda's remark was not part of a concerted effort by Tokyo to check the currency's declines. "The governor had no intention of sending a warning shot to markets," said one official on condition of anonymity. Traders said market focus was shifting back to US data. Expectations are the retail sales report will show a 1.1 percent rise in May from a month earlier and 0.7 percent rise, ex-autos.
Many investors think the dollar needs support from robust US data, which would convince the bond market the Fed will be ready to raise rates sooner than the market is now pricing in.
The euro was down 0.45 percent at $1.1275. Losses were limited by cautious optimism that Greece might be nearing a deal with its creditors. Elevated Bund yields helped; the 10-year was trading around 1 percent. "The question then is whether US retail sales can buy dollar bulls some breathing room, or a corrective sell-off has to be seen first," Chris Turner, head of currency strategy at ING, wrote in a note. "A stronger number would support our core view of a lower euro/dollar - but certainly those views will require a rethink if the euro closes above $1.1380 today."