The New Zealand dollar fell to a fresh six-year low on Friday after the central bank governor said the bank could cut interest rates further and inject more cash into the system. Governor Alan Bollard said in a speech on Friday there was still room for borrowing costs to be lowered in response to a deteriorating global outlook, after the bank lopped 150 basis points off its key cash rate on Thursday.
The comments reinforced market expectations that the bank was ready to keep cutting the cash rate, now at a record low 3.5 percent after 475 basis points worth of cuts since July. "The market is taking that as being bullish of rates," said Khoon Goh, a senior economist at ANZ-National Bank.
A Reuters poll after Thursday's move showed eight of 14 economists expect another 50 basis point cut at the RBNZ's March 12 monetary review. The New Zealand dollar settled around $0.5098/01 late in local trading, after hitting a six-year low of $0.5077 following Bollard's comments.
The kiwi has fallen about 13 percent already this year as investors priced in more rate cuts and a possible credit rating downgrade. Standard & Poor's warned earlier this month it could cut New Zealand's foreign currency rating if external imbalances begin to pressure investment, growth and fiscal performance.
A fresh bout of risk aversion also hurt the kiwi as deepening concerns over the global recession prompted investors to avoid the currencies of countries running big current account deficits, such as New Zealand. The flight to safe havens benefited the yen, with the kiwi sinking 1.3 percent to 45.60 yen, approaching an eight-year low of 45.03 yen struck last week.
Also reflecting the tough economic times in New Zealand was the latest data on the property sector, with new building approvals staying around record low levels in December, giving further evidence of a deepening recession. Longer-dated New Zealand bonds edged lower as US Treasuries fell on oversupply concerns. The New Zealand government tender of NZ$150 million in three maturities was well supported.