N.Z. Dollar Drops to 2013 Low After RBNZ Says Rate Cut Possible

New Zealand’s dollar dropped to the weakest level this year after its central bank said the currency’s strength may prompt it to lower benchmark borrowing costs to help the economy cope with a drought.

The so-called kiwi tumbled by more than one U.S. cent after the Reserve Bank of New Zealand held rates unchanged at 2.5 percent and said it expects to keep record-low borrowing costs until next year. Swaps traders had been pricing in a 23 basis-point increase over 12 months, according to a Credit Suisse Group AG index based on swaps.

“The RBNZ has taken a swipe at the market’s pricing in of hikes for this year,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “Not only is the bank trying to guide the market toward a later start to its hiking cycle, but there’s a thinly veiled threat in the statement about cutting rates if the kiwi refuses to fall. So the kiwi has suffered from a double whammy of sliding interest rates and jawboning.”

The New Zealand dollar traded at 81.80 U.S. cents as of 7:56 a.m. in Sydney after falling as low as 81.62, the least since Dec. 26, from 82.68 just before the decision. It bought 78.60 yen.

The kiwi slid to NZ$1.2605 against the Australian dollar, the weakest level since Jan. 18.

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