The New Zealand dollar was by far the biggest faller among major currencies on Thursday, down almost a full percentage point after its central bank blind-sided investors by signalling any tightening might be at least two years away. The euro also dipped against the dollar, with political risks, most notably France's upcoming election, nudging it towards its worst week in nearly two months.
And in a week which has seen the U.S dollar firm broadly, the greenback was held in check by falling Treasury yields and lingering concerns that President Trump may reiterate his opposition to a strong dollar at a meeting with his Japanese counterpart on Friday. But the kiwi stole the show for G10 markets, with a dovish steer from the central bank catching investors off guard after some recent strong data.
After the bank kept rates on hold at 1.75 percent as expected, Governor Graeme Wheeler said a protectionist trade policy from the United States was a major risk to the economy and that rates could stay as they are for two years or more.
"New Zealand has typically tended to hike as soon as they get good data. They tend to be quite responsive but they appear to have learnt from that mistake and will keep rates steady for a while now," Viraj Patel, a currency strategist at ING, said.
The New Zealand dollar was down 0.8 percent at $0.7208, pulling away from a three-month high of $0.7375 hit earlier this week. The US dollar index against a basket of major currencies was flat at 100.33, but well off a 2-1/2-month low struck last week. The euro was down 0.2 percent at $1.068 and has shed around 1 percent against the dollar this week, on course for its worst run since mid December.
A poll released Friday confirmed far-right leader Marine Le Pen looks set to win the first round of France's presidential election in April, with other polls indicating she will lose the runoff to centrist Emmanuel Macron. But in a sign of how far voting intentions have shifted, Francois Fillon, a conservative who was favourite to win election only two weeks ago but has seen his campaign damaged by scandal, is now seen knocked out in the first round.
The dollar gained 0.4 percent against a broadly weaker yen to 112.37 yen, but analysts said it could be hurt by further criticism from Trump when he meets Japanese Prime Minister Shinzo Abe at a two-day summit starting on Friday.
Trump and his top trade adviser Peter Navarro lashed out at Germany, Japan and China last week, saying the trading partners were engaged in devaluing their currencies to the disadvantage of the United States. "Trump may opt to take a tough stance against Japan amid the perceived political chaos. Taking such a stance would also set him up to talk tough with China," said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.
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