Dollar falls on commodity weakness ahead of expected Reserve Bank rate cut

See also: RBNZ cuts OCR, signals 'softer' economic outlook

The New Zealand dollar fell along with other commodity currencies ahead of an expected Reserve Bank interest rate cut this morning.

The kiwi dropped to 65.82 US cents at 8am in Wellington, from 66.16 cents at 5pm yesterday. The trade-weighted index declined to 69.99 from 70.20 yesterday.

Commodity currencies, including the New Zealand, Australian and Canadian dollars, declined as oil prices fell following an unexpected rise in inventories. Reserve Bank governor Graeme Wheeler is expected to cut the official cash rate by 25 basis points to 3% today as prices for dairy products, the nation's largest commodity export, remain lower for longer and inflation remains lower than target.

"One of the main reasons the market is confident the Reserve Bank will cut the OCR 25 bps this morning is the ongoing fall in dairy prices, with average prices at the latest auction down double digits and have more than halved since February, and no one able to call a floor. But commodity woes are far from specific to dairy," ANZ Bank New Zealand senior economist Sharon Zollner and senior FX strategist Sam Tuck said in a note.

"It is a sea of red across the entire commodity complex, which is not telling us anything good about global growth, and resource-hungry China in particular. Commodity currencies such as the NZD, AUD and CAD have suffered."

The New Zealand dollar has declined about 16% so far this year and ANZ said given it is now below 66USc, the Reserve Bank may drop references to the level of the currency being "unjustified" and "unsustainable" in its statement today - trigger words signalling the central bank could intervene in the market.

ANZ expects the kiwi to trade between 65.10USc and 66.50c today.

The New Zealand dollar fell to 42.17 British pence from 42.48 pence yesterday as the pound strengthened after the Bank of England minutes to its last meeting showed it was moving closer to an interest rate hike.

The local currency declined to 60.29 euro cents from 60.45 cents yesterday, weakened to ¥81.62 from 81.82 and was little changed at 89.21Ac from 89.14c..

(BusinessDesk)