NZ dollar drops after RBNZ disappoints hawks, Aussie dollar dragged lower

[SYDNEY] The New Zealand dollar skidded lower on Thursday after the country's central bank dashed bulls' hopes that a rate hike would happen sooner rather than later, also pressuring its Australian cousin.

The New Zealand dollar dropped to US$0.7225, from US$0.7300 the previous session and away from a three-month peak of US$0.7375 touched earlier this week. Support was found at US$0.7180.

The kiwi has shed more than one per cent this week and if sustained, it would represent the first weekly loss this year.

The Reserve Bank of New Zealand (RBNZ) kept rates at a record low of 1.75 per cent on Thursday, as expected, and said that any tightening in policy might be at least two years away.

The market had been pricing in a move around late 2017.

"The RBNZ's statement reminded market participants that rate hikes are some way off," said Nick Tuffley, chief economist at ASB.

"The market has moved from having a rate hike largely priced in by the end of the year, to a 50 per cent chance."

New Zealand government bonds gained, with yields as much as eight basis points lower.

The kiwi fell against its Aussie cousin which rose to NZ$1.0550. A break above NZ$1.0572 would be the highest since November.

The euro also received a fillip to touch NZ$1.4785 , away from a two-year low hit earlier this week.

With all that selling in the kiwi, the Australian dollar fell in sympathy to be down 0.3 per cent against its US peer at US$0.7621.

The Aussie has slipped around one per cent so far this week, after repeatedly failing to breach a key chart resistance level at 77 US cents. Support was found near US$0.7605.

Still, it remained within reach of a three-month peak of US$0.7696 touched last week after Australia posted its biggest-ever trade surplus.

The euro regained some ground to A$1.4018, having fallen on Wednesday as far as A$1.3925, the lowest since May 2015.

Australian government bond futures rose to two-month highs, with the three-year bond contract up three ticks at 98.090. The 10-year contract gained six ticks to 97.3350, while the 20-year contract added 6.5 ticks to 96.7000.

REUTERS