New Zealand dollar dives to 68.2 US cents (Updated)

New Zealand dollar dives to 68.2 US cents (Updated)

The New Zealand dollar is dropping like a stone. (Updated to include detail on Japanese GDP slump). The Kiwi dropped to 68.2 US cents in Wednesday afternoon trade and has now dropped 10% in the last 3 weeks since the Reserve Bank surprised markets by cutting the Official Cash Rate to 8% from 8.25% and signalled further rate cuts. However those future rate cuts were predicated by Reserve Bank Governor Alan Bollard on a slowing of inflation pressures and provided "there is no excessive exchange rate depreciation." A 10% fall in the currency inside 3 weeks sounds excessive. Economists and markets had been expecting the Reserve Bank to cut the OCR by at least a further 25 basis points when the bank next decides on monetary policy on September 11. Some had even suggested a 50 basis point cut to 7.5% was possible. What's your view now? Is a rate cut still sensible? Might the Reserve Bank hold back? Should the Reserve Bank hold back? The reason for the sharp fall at 2 pm was not immediately clear, but the discussion below is instructive. Japan's GDP contracted at an annualised rate to 2.4% in the June quarter because of lower exports and consumer spending, data released this afternoon showed. Demand from Japanese retail investors for New Zealand dollar Uridashi bonds has been a major factor in our currency's rise from 2003 to 2007. When things get tough at home some investors might be more likely to bring their money home. Another theory is a slow Japanese economy reduces demand for commodity exports, therefore reducing commodity prices and dragging down the "commodity" currencies of the New Zealand and Australian dollars.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.