The likelihood of no further interest rate hikes wiped away the NZ dollar's allure sending it down more than 3 percent to a six-month low (file photo). Photo: 123rf
The Kiwi dollar is under pressure after the Reserve Bank effectively called a halt to further monetary tightening after its last 25 basis point rise to 5.5 percent last week.
Some forecasters had thought the RBNZ might go to 50 basis points, or signal further hikes in the middle of the year.
The likelihood of no further interest rate hikes wiped away the New Zealand dollar's allure sending it down more than 3 percent to a six-month low.
"I think some traders would have been caught unawares by all these developments and probably have been liquidating some positions, so some of the short term movement may have been a little bit of an overreaction," BNZ market strategist Jason Wong said.
However, he said global issues would also continue to weigh on the Kiwi, particularly uncertainty over the United States debt.
"Global forces have driven it lower. There is concern around the US debt ceiling. China's been in the headlines quite a bit during the week and looks like their (economic) momentum is fading. Commodity prices are weaker as well. The Aussie dollar has also had a pretty bad week as well," Wong said.
He expected the Kiwi would consolidate around 62 to 63 US cents, based on fair market values, but that depended on global activity.
Wong said it could "all turn to custard" if the US failed to lift the debt ceiling which currently stood at US$31.4 trillion.
"We saw a similar episode of back in August 2011. And during that phase, the Kiwi dollar fell about 9 US cents," Wong said, adding the Kiwi had quickly recovered from the episode.
The Kiwi dollar was equally soft against most major currencies down more than 2 percent against the yen, sterling, and yuan, and when compared to a basket of currencies against our major trading partners, it was nearly 2 percent down so far this year.