NZ dollar falls to 2 1/2 year low after Canadian central bank cuts rates

Thursday 22nd January 2015

The New Zealand dollar fell to a two-and-a-half year low after the Bank of Canada cut its benchmark interest rate, weighing on other commodity-linked currencies such as the kiwi and the Aussie.

The local currency touched 75.52 US cents, and was trading at 75.66 cents at 8am in Wellington, from 76.58 cents at 5pm yesterday. The Australian dollar dropped to 80.87 US cents from 82.08 cents yesterday.

Canada's dollar slumped to its lowest in almost six years after the BOC unexpectedly cut its benchmark rate to 0.75 percent, from 1 percent, saying a collapse in the price of oil will weigh on the economy. The move influenced sentiment towards other commodity-linked currencies, pushing the Aussie and kiwi sharply lower in response.

"Commodity-linked currencies have been the worst performers, led lower by the Canadian dollar," Kymberly Martin, senior market strategist at Bank of New Zealand, said in a note. "There are perceived similarities between the Australian dollar and the Canadian dollar by virtue of both belonging to energy producing nations. However, the market is likely also making the connection that the Reserve Bank of Australia and Reserve Bank of New Zealand are two of the only developed market banks to still have notable capacity to cut rates."

New Zealand's benchmark interest rate is 3.5 percent while Australia's is 2.5 percent.

In New Zealand today, the BNZ-BusinessNZ Performance of Manufacturing Index and the ANZ Roy Morgan consumer confidence reports are released.

The New Zealand dollar fell to 65.38 euro cents from 66.19 cents yesterday ahead of reports the European Central Bank will detail its quantitative easing plans at its meeting today. The ECB's Executive Board has proposed a programme that would see the bank buy 50 billion euros in bonds per month starting in March and ending in December 2016, according to news reports citing unidentified officials.

The kiwi fell to 50.07 British pence from 50.48 pence, declined to 89.21 yen from 90.15 yen and advanced to 93.57 Australian cents from 93.28 cents. The trade-weighted index dropped to 77.45 from 78.15 yesterday.

BusinessDesk.co.nz

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