NZ Dollar Plunges As RBNZ's Wheeler Talks Down Currency

The New Zealand dollar tumbled against the other major currencies in Asian deals on Thursday, as Reserve Bank of New Zealand governor Graeme Wheeler warned that the level of the domestic currency cannot be justified and "there is potential for a significant fall." The central bank decided to raise the cash rate as expected, while signaling that it plans to pause its tightening cycle.

The RBNZ hiked its official cash rate by 25 basis points to 3.50 percent from 3.25 percent. The decision was in line with expectations, and it marked the fourth straight meeting in which the RBNZ has hiked the OCR.

Wheeler noted that New Zealand's export prices for dairy and timber have fallen over recent months, which "would reduce primary sector incomes over the coming year". "With the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall," he added.

The economy seems to be adjusting with recent monetary policy tightening cycle, Wheeler told. Regarding future course of monetary policy, Wheeler noted that "it would be wise that there now be a period of assessment before interest rates adjust further towards a more-neutral level."

In economic news, New Zealand's trade surplus came in at NZ$247 million in June following the downwardly revised surplus of NZ$270 million in May, data from the Statistics New Zealand showed.

Exports were up NZ$4.20 billion in June, while imports added NZ$3.95 billion.

The New Zealand dollar depreciated to 0.8592 against the greenback, a level not seen since June 12, and was lower by 1.2 percent from an early high of 0.8699. Continuation of downtrend may take the kiwi to a support around the 0.85 zone. The pair was worth 0.8698 at yesterday's close.

The kiwi fell by 1.1 percent to hit a 6-week low of 87.25 against the yen, off a high of 88.26 hit at the commencement of today's trading. The next possible downside target for the kiwi is seen around the 86.00 mark.

Data from Ministry of Finance showed that Japan posted a merchandise trade deficit of 822.2 billion yen in June. That missed forecasts for a shortfall of 642.9 billion yen following the 910.8 billion yen deficit in May.

Reversing from an early high of 1.5459 against the euro, the kiwi declined to a 4-week low of 1.5661 during Asian deals. The kiwi is poised to test support around the 1.575 region.

The kiwi came off from early high of 1.0852 against the aussie and fell by 1.2 percent to a new 6-week low of 1.0997. The kiwi is likely to challenge support around the 1.10 level. The pair was valued at 1.0856 when it closed deals yesterday.

Looking ahead, PMIs from major European economies are due in the European session.

The U.S. weekly jobless claims for the week ended July 19, new home sales data for June and Markit's preliminary manufacturing PMI for July are to be released in the New York session.