Interest rate hold disapoints dollar

LAURA WALTERS
Last updated 07:52 31/01/2014

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The New Zealand dollar continues to drop against the US currency after the Reserve Bank's decision to leave interest rates unchanged.

The kiwi was trading at US81.36c at 7am, down from US81.78c at 5pm yesterday. It dropped as low as US81.22c this morning.

The kiwi was trading at US82.75c yesterday morning before the Reserve Bank said it would leave the official cash rate at 2.5 per cent.

Westpac market strategist Imre Speizer said the kiwi slipped a further half-cent overnight in the fallout from the Reserve Bank's decision.

Only a minority of the interest-rate market expected a rate hike yesterday, with the remainder picking a March interest rate increase, Speizer said.

"But that's all it takes."

It was hard to know in "currency land" how many people expected an interest rate hike, he said.

"At a guess there might have been more people betting on a hike. So they've been disappointed."

Speizer said the market expected interest rates to rise 25 basis points in March. A minority of economists were picking a 50-point rise.

Reserve Bank governor Graeme Wheeler said yesterday the central bank expected to start the process of rate adjustment "soon" to help counter inflationary pressures over the next two years.

In the meantime the kiwi could continue to slide.

Speizer said the could dip further to trade below US81.20c today.

"It's breaking down now, it's got momentum," he said.

The kiwi also declined against the Australian dollar on the back of the Reserve Bank decision, dropping nearly 1 cent against following yesterday's announcement.

The kiwi was trading at A92.59c at 7am from A94.50c yesterday morning.

However, the New Zealand dollar has risen 14.6 per cent against the aussie during the past 12 months and is nearly 2 per cent stronger since the start of this year.

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- © Fairfax NZ News

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