The New Zealand dollar lost altitude for a sixth straight session on Wednesday as speculation about a rate cut as early as August hit fever pitch a day before the country's central bank issues an economic update. The kiwi dollar, which shed two-and-a-half US cents in the past week, fell another 0.2 percent to $0.7040 before recovering a bit. Its Australian counterpart has surged 3 percent on the kiwi since coming near to parity early this month.
The Reserve Bank of New Zealand added fuel to the fire on Tuesday by proposing new restrictions on mortgage lending to try to cool red-hot house prices. "With new steps under way to deal with booming house prices, the market now sees a greater chance of interest rate cuts by the RBNZ," said Michael Gordon, an economist at Westpac.
"We were already firmly of the view that the RBNZ would cut again. The announcement on loans, and the hastily scheduled economic update on Thursday, only reinforce our view." The central bank will release its update at 9 am Thursday local time, (2100 GMT Wednesday). The market will be watching for further clues about whether it might cut at a policy meeting on August 11.
The Aussie dollar restrained at $0.7498 and well off last week's top of $0.7676. In debt markets, New Zealand government bonds eased slightly sending yields up 1 basis point at the long end of the curve. Australian government bond futures were unchanged, with the three-year bond contract at 98.550 and the 10-year contract at 98.0650. The market is now pricing in an 80 percent chance a rate cut by the RBNZ, according to BNZ senior market strategist Kymberly Martin.
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