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Dollar tumbles to lowest point in more than two years

Radio New Zealand logo Radio New Zealand 9/08/2018

The New Zealand dollar has fallen nearly 2 percent to US$0.6613 its lowest level since March 2016.

The tumble was in response to the Reserve Bank of New Zealand unexpectedly committing yesterday to keep interest rates at record lows through to 2020 on disappointing economic activity.

Reuters described the New Zealand dollar as being the "big mover" among currencies.

Effectively, a lower dollar means that goods imported to New Zealand will be more expensive. Equally, New Zealand exports become more competitive in price meaning that exporters can see an increase in demand.

New Zealand consumers often notice a lower dollar first in rising costs of going overseas.

At the same time as the Kiwi dollar fell, the US dollar rose against most currencies as investors bet that it may have the upper hand over emerging market currencies in a trade war.

Yesterday, the Reserve Bank left the cost of borrowing at 1.75 percent for the 12th time in a row, and indicated it may now stay there until late 2020.

Economic growth has slowed recently, but the Reserve Bank governor Adrian Orr said it's expected to pick up while inflation is also rising.

But he remained cautious about what the future may bring.

Mr Orr said weaker business confidence could undermine firms' hiring and investment plans, harming growth.

On the other hand, inflation pressures, which have remained subdued, are rising and might take off.

He said the safest course for now was to wait and watch, and the next move could be up or down.

Sterling on Thursday continued to slide, hitting $1.2879 following a drop to $1.2854 on Wednesday.

The pound is weakening as investors ramp up bets that Britain will leave the European Union without an agreement with Brussels on their future relationship.

In the United States, better-than-expected data on initial jobless claims and generally rising producer prices helped the dollar hold its gains.

"Higher consumer prices, which are on the cards, would be supportive of both the dollar and the Federal Reserve, raising rates further this year," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Reflecting concerns among investors about geopolitical tensions, including the US-China trade war and Brexit, the yen rose before trading flat against the dollar.

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