NZ dollar falls to three-week low after rate call

[dailyforexnews]

The New Zealand dollar dived two cents to its lowest in three weeks on Thursday, extending losses after the central bank dampened expectations of an early interest rate rise.

The Reserve Bank of New Zealand (RBNZ) left rates on hold at 2.50 percent and moved to a neutral bias, as expected. But it said it expected to keep rates at current levels until the second half of 2010, against market expectations of a tightening in the first half of next year. For more see [ID:nSYD80874]

Swap markets, which had priced in 25-basis-point rate rises in both January and March <NZDOIS>, have now retreated to bet on a first hike in March.

"In a very direct way, the RBNZ has flagged that current market pricing of early 2010 rate hikes is premature," analysts at ANZ Bank said in a note to clients.

A Reuters poll taken after the central bank decision showed the majority of analysts still expect rates to rise in the first half of next year, on expectations of a recovery in the domestic economy picking up momentum. [NZ/POLL]

The kiwi <NZD=D4> was at $0.7176/84 at 0350 GMT, compared with $0.7370/80 in late local trade on Wednesday.

It touched a low of $0.7165 <NZD=D4>, compounding losses in the previous offshore session as rising fears over the health of the global recovery saw investors flock to safer havens such as the U.S. dollar and yen <JPY=>.

The kiwi has now fallen five cents in the past week from a 15-month high of $0.7635 last Thursday.

Government debt gained, tracking a rise in U.S. Treasuries, with the yield on the benchmark 10-year bond <NZ10YT=RR> 8 basis points lower at 5.765 percent.