The New Zealand dollar skidded to its lowest level in more than six weeks on Thursday after the country's central bank flagged more rate cuts ahead, saying the currency had to go lower to generate a much-needed rise in inflation. The kiwi dollar shed 1 percent in short order to hit $0.6954 after the Reserve Bank of New Zealand issued a dovish outlook on the economy. But it later recouped some of those losses to stand at $0.6984 by 0510 GMT, down 0.6 percent on the day.
It has now lost more than four percent over two weeks on talk of rate cuts. The RBNZ bluntly stated that the currency was too high and a fall was "needed" to revive inflation, which slowed to just 0.4 percent in the second quarter. Yields on two-year government paper were down at 1.885 percent with investors front running the bank. While yields on 10-year bonds were not far behind at 2.27 percent, they are still very high by international standards and a major reason why the kiwi keeps defying RBNZ pressure for a substantial decline.
The Australian dollar made the most of the kiwi's lapse and climbed 0.8 percent to NZ$1.0720, taking it a long way from the recent trough of NZ$1.0303. The Aussie had less luck against the US dollar, in large part because market also suspects that Australian interest rates will soon be cut. The Aussie was up 0.23 percent at $0.7491 after having fallen two cents in five sessions. Among Australian government bond futures, the three-year bond contract rose 2 ticks to 98.580, while the 10-year contract fell half a tick to 98.060.
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