Yen, Kiwi Tumble to Reach Six-Week Lows on Stimulus Expectations

Updated on
  • Japan considering 20 trillion yen stimulus package: Kyodo
  • RBNZ flagged monetary easing, need for currency drop

Japan’s yen and New Zealand’s dollar tumbled to their lowest levels in six weeks amid speculation the nations will boost economic stimulus.

The Japanese government is considering a 20 trillion yen ($187 billion) package, about double its initial plan, to counter the possible effects of the U.K.’s decision to leave the European Union, Kyodo News reported, citing people close to the matter. The Reserve Bank of New Zealand said further monetary easing may be required to lift inflation, along with a decline in the exchange rate, reinforcing expectations of an interest-rate cut next month. Japan’s central bank will hold a two-day policy meeting ending July 29.

“The yen should continue to ratchet lower against the dollar into next Friday’s Bank of Japan meeting,” said Sean Callow,  a senior foreign-exchange strategist at Westpac Banking Corp. in Sydney. “As for the kiwi, an August rate cut is effectively a done deal. It should underperform on crosses near term.”

The yen fell as much as 0.5 percent to 107.45 per dollar, its weakest since June 7, before moving to 107.16 as of 8:15 a.m. in Tokyo Thursday. The currency may test its 100-day moving average of 108.34, Callow said. It is this month’s worst performer among 16 major counterparts, followed by the kiwi.

RBNZ Assessment

New Zealand’s dollar dropped 0.8 percent to 69.69 U.S cents, after touching 69.54, the lowest since June 8. 

In its assessment of economic conditions, the RBNZ also blamed the currency for “holding down tradable goods inflation” and making it difficult to meet the inflation target of 1 percent to 3 percent. The country’s consumer prices rose a lower-than-expected 0.4 percent in the second quarter from a year earlier, data showed this week.

Swaps traders are pricing in a 90 percent chance of a RBNZ rate reduction on Aug. 11, compared with 75 percent Wednesday.