Kiwi Sinks as N.Z. Growth Slowdown Backs Case for More Rate Cuts

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New Zealand’s dollar slumped to a five-year low after slowing economic growth backed the case for additional interest-rate cuts.

The kiwi headed for a record ninth week of declines versus the greenback as the pace of expansion in gross domestic product unexpectedly slowed to the weakest in two years. Swaps markets are pricing an 85 percent chance the Reserve Bank will cut its 3.25 percent benchmark interest rate next month, data compiled by Bloomberg show.

“The GDP number has certainly set the tone for the kiwi,” said Stan Shamu, a Melbourne-based market strategist at IG Ltd. “If conditions don’t improve, then the market will look for another rate cut.”

The currency dropped as much as 1.5 percent to 68.81 U.S. cents from Wednesday, matching its weakest level since July 2010. It was 0.6 percent lower at 69.48 cents as of 6:33 a.m. New York time.

The kiwi weakened 1.6 percent to NZ$1.1262 versus the Aussie, after touching NZ$1.1280, a level unseen since Nov. 4. It was at a post-float high of NZ$1.0021 as recently as April 6. The Aussie climbed 1 percent to 78.27 U.S. cents.

New Zealand’s economy grew 0.2 percent in the first quarter compared with the previous period. The median estimate of economists was for a 0.6 percent expansion.

‘Softer’ Rate

“We need a period of a softer exchange rate,” New Zealand Finance Minister Bill English said in an interview with CNBC.

The New Zealand dollar is the worst-performing developed-market currency this year, dropping 12 percent against the greenback.

Swaps traders see better than 50 percent odds the Reserve Bank will cut rates to below 3 percent by year-end, swaps data show, after policy makers unexpectedly reduced borrowing costs by a quarter point on June 11. RBNZ Governor Graeme Wheeler said “further easing may be appropriate.”

“2015 started with a whimper,” Michael Turner, a Sydney-based fixed-income strategist at Royal Bank of Canada wrote in a client note. “We continue to see a cut in July.”

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