You are here

NZ dollar slumps after govt cuts growth outlook

[SYDNEY] The New Zealand dollar tumbled to a one-week low against its US counterpart and a 3-1/2-month trough on its Australian cousin on Wednesday after the government downgraded its growth outlook for this fiscal year and next. The New Zealand Treasury reduced its economic growth forecast for the year to June to 2.6 per cent from 3.2 per cent previously, and cut its growth projection of 3.5 per cent in the year to June 2018, from 3.7 per cent in the May budget update.

The Aussie, which has benefited from strong metals prices, took advantage of the kiwi's woes and climbed to NZ$1.0907, a level not seen since May 2. It has been on an uptrend since late July with iron ore futures at more than five-month highs amid strong demand from steelmakers.

Copper held near a three-year top on Wednesday while nickel rose to the highest since December and zinc stood near decade highs.

In contrast, New Zealand's largest goods export - dairy - has been a bit wobbly recently, falling in four out of the last five auctions.

Market voices on:

The biggest driver of the kiwi was the slightly less rosy outlook painted by the government.

"Overall we've seen a slightly softer growth story but not markedly, just slightly softer over the four-year track," New Zealand finance minister Steven Joyce said.

The US dollar rose broadly after House Speaker Paul Ryan told CNN that tax reform would be easier to pass because Republicans have built a consensus.

The New Zealand dollar sank to a one-week trough of US$0.7232. It last fetched US$0.7248.

The slipped to US$0.7894 on Wednesday from a high of US$0.7951 hit in the previous session.

"The USD strengthened overnight, driven by speculation that the Trump administration will soon reform the tax code," Giulia Specchia of ANZ Research said in a note.

Analysts expect cautious trade ahead an annual gathering of central bankers at Jackson Hole later in the week where Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi are due to speak.

"Sentiment in markets remains well supported; but, with no top tier data out, markets will likely continue to trade in ranges - as the focus remains on the Jackson Hole meeting," Ms Specchia added.

New Zealand government bonds eased, sending yields about 3.5 basis points higher at the long end of the curve.

Australian government bond futures slipped, with the three-year bond contract down two ticks at 98.000. The 10-year contract stumbled 3.5 ticks to 97.3250.