Kiwi Apes Aussie Drop to 2009 Low With Loonie as Commodities Sag

Updated on

The New Zealand dollar slumped to a six-year low as commodity currencies tumbled after Canada’s interest-rate cut underscored the divergence between sagging growth in resource exporters and a strengthening U.S. economy.

The kiwi dropped as much as 1.3 percent Thursday to levels last seen in July 2009 after whole milk prices tumbled and inflation was below the central bank’s target band. The loonie and the Aussie also extended losses as declining prices for the nations’ major exports spurred speculation policy makers will keep cutting borrowing costs that are already at or near record lows. Oil is set for a third weekly loss after Iran reached a nuclear deal with world powers.

“The Aussie and kiwi are tracking declines following the Bank of Canada’s rate decision,” said Masafumi Yamamoto, a senior strategist at Monex Inc. in Tokyo. “It’s hard to see the Canadian dollar rise from here. With the prospect of economic sanctions against Iran ending, oil prices will probably struggle.”

New Zealand’s dollar fell 1.1 percent to 65.19 U.S. cents as of 6:09 a.m. London time after sliding to as low as 65.07. Canada’s currency declined 0.1 percent to C$1.2931 per greenback, after weakening to C$1.2958 on Wednesday.

Australia’s currency slipped 0.2 percent to 73.61 U.S. cents and matched a six-year low of 73.54 set the previous day.

Swaps traders are certain the Reserve Bank of New Zealand will cut rates by at least 25 basis points when it meets in a week’s time. There’s a 28 percent chance for a 50 basis point reduction, data compiled by Bloomberg show.

Dairy Headwinds

Weaker prospects for dairy prices are an economic headwind, Governor Graeme Wheeler said last month after lowering the official cash rate to 3.25 percent. Data released Thursday showed the country’s inflation held below the central bank’s target band for a third quarter.

Westpac Banking Corp. said it expects the RBNZ to cut the official rate to 2 percent by the year-end, with the reduction involving one cut of 50 basis points, most likely in September, and three other reductions of 25 basis points.

“Growth momentum across commodity economies remains weak, and outright growth is likely to slow further,” said Atul Lele, who manages $2 billion as the chief investment officer of Deltec International Group from Nassau, Bahamas. “That may ultimately lead to deleveraging across housing and other asset classes, all necessitating increasing monetary stimulus.”

(An earlier version of this story was corrected to say inflation remained below the central bank target band, rather than slowed.)

Before it's here, it's on the Bloomberg Terminal. LEARN MORE