New Zealand's Dollar Drops to 10-Month Low on Rate Expectations

By Candice Zachariahs

July 30 (Bloomberg) -- New Zealand's dollar fell to a 10- month low as speculation increased that the central bank will reduce interest rates further this year and the U.S. dollar gained against most-actively traded currencies.

The kiwi, as the currency is nicknamed, fell for a third day as traders bet that rate reductions will make the local dollar less attractive to foreign investors seeking higher- yielding assets. The Reserve Bank of New Zealand lowered the benchmark rate to 8 percent on July 24 and said further cuts were likely.

``The kiwi has been on a slow protracted decline since the RBNZ eased last week,'' said John Body, head of financial markets at ANZ National Bank Ltd. in Auckland. ``We don't see any reason to say that's not going to continue.''

New Zealand's dollar fell 0.1 percent to 74.01 U.S. cents at 8:30 a.m. in Wellington from 74.06 cents in late Asian trading yesterday. It earlier touched 73.47 cents, the weakest since Sept. 26. It bought 79.98 yen, from 79.76.

The kiwi has lost 3.4 percent since the beginning of the year as investors bet that the central bank will keep reducing rates to boost an economy on the brink of recession. Statistics New Zealand said in Wellington yesterday that home-building approvals slipped 20 percent in June from May to 1,337, the lowest since October 1986.

The odds that the RBNZ will lower its 8 percent benchmark interest rate a quarter-percentage point at its September meeting were 100 percent, a Credit Suisse Group index based on interest-rate swaps showed.

To contact the reporter on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net