The New Zealand dollar skidded to a five-year low on Thursday after data showed economic growth was much weaker-than-expected, prompting markets to narrow the odds of further cuts in interest rates. In contrast, its Australian peer held onto most of its gains versus a defensive greenback, which fell broadly overnight on dovish-sounding signals from the Federal Reserve.
The kiwi traded at $0.6904, having fallen almost a cent to $0.6880, its weakest since July 2010, after the economy came close to stalling in the first quarter. Gross domestic product (GDP) rose a mere 0.2 percent on the quarter. "The GDP data reinforces that they (the Reserve Bank) were correct to cut last week and cements they'll go in July, and we're expecting a third cut," said ANZ senior strategist Sam Tuck.
The RBNZ surprised some last week when it reversed course and trimmed rates a quarter point to 3.25 percent. "The risks clearly lie now for a move down to the 2010 low of $0.6561," added Tuck. Near term support is seen at $0.6860, with sellers expected at $0.6945/50. Solid resistance is pegged at $0.7010.
The kiwi also lost ground against its Australian peer, which climbed to a seven-month high of NZ$1.1215. Further gains, however, may be limited by a strong chart barrier near NZ$1.1300, a level which capped the Aussie late last year. Against a trade-weighted currency basket, the NZ dollar was down 0.7 percent. The Aussie dollar, meanwhile, was little changed at $0.7737, having bounced from $0.7636 as the greenback weakened after the Fed outcome. New Zealand bond yields fell as much as 9.5 basis points. Australia's three-year bond futures climbed 10 ticks to 98.060, while the 10-year contract put on 13.5 ticks to 97.1000.