New Zealand Dollar Falls as Bollard Says Rate Cuts `Likely'


The New Zealand dollar fell the most in two months after the nation's central bank Governor Alan Bollard said he was ``likely'' to cut interest rates this year.

The currency dropped below its 200-day moving average as prospects the country's record-high borrowing costs will be reduced encouraged investors to seek higher-yielding assets elsewhere. The local dollar declined against all 16 of the most- traded currencies as Bollard said he expected inflation pressures to ease because of a slump in spending and employment.

The New Zealand dollar dropped 1.7 percent to 76.93 U.S. cents as of 10.48 a.m. in Wellington, compared with 78.28 cents in late Asian trading yesterday. It reached 76.85, the lowest since May 16.

The currency reached an all-time high of 82.13 cents in March as international investors flocked to New Zealand assets because the nation's 8.25 percent benchmark rate is the highest of any country with a Aaa credit rating.

Bollard, who has kept borrowing costs unchanged since July to stall domestic demand, says the economy contracted in the first three months of the year. Retail sales and employment fell in the first quarter and house sales slumped in April to a 16- year low, adding to signs spending and inflation will slow.


TradingEconomics.com, Bloomberg
6/4/2008 7:41:50 PM