NZ dollar loses allure after OCR move

The New Zealand dollar has stabilised at a lower level, and is expected to fall further, after the Reserve Bank signalled that it had finished raising interest rates.

The kiwi fell from about US62.5c to US60.5c after the Reserve Bank Te Pu¯ tea Matua lifted the official cash rate (OCR) by 25 basis points to 5.5% a week ago and signalled that no further tightening would be needed.

‘‘We have seen quite a marked weakening in the New Zealand dollar,’’ said ASB senior economist Kim Mundy. ‘‘Pretty quickly it lost about 2c, and it’s still 2c lower today, so it hasn’t made any gains since that decision.’’

Mundy said the kiwi could fall to around US58c by the middle of the year as global economic growth slowed. ‘‘Commodity currencies, like the kiwi dollar and aussie dollar, never do well in those circumstances, so we do think the kiwi can continue to just sort of grind a bit lower.’’

The focus in currency markets was moving from how much further central banks might tighten to when they might start to cut interest rates, and how fast, she said.

‘‘You’re seeing the whole curve being looked at, at the moment, and it’s not only in New Zealand. We’ve seen a lot of market pricing for rate cuts in the US taken out, so that influences the US dollar.’’

Mundy said interest rate markets were toying with the idea of another rate hike by the Reserve Bank this year but were not convinced, pricing in a 40% chance of one more hike.

Following the Reserve Bank’s latest decision, ASB now expects the OCR to stay at 5.5% until May next year. ‘‘We’re seeing signs now that inflation has probably peaked, but it is still at very high levels,’’ Mundy said. ‘‘We think the Reserve Bank is going to want to be very, very certain that inflation is going to return to target before it even considers starting to cut the OCR.’’

Kiwifruit exporter Zespri reported a 34% drop in annual profit as it struggled with fruit quality.

Zespri’s profit dropped to $237.8 million from a record $361.5m last year, the company said in a statement on the Unlisted Securities Exchange. Revenue fell 5.6% to $4.22 billion.

Chief executive Dan Mathieson said the result reflected a challenging period for the kiwifruit industry, with grower returns down on the back of fruit quality issues primarily driven by the industry’s severe labour shortage, along with cost increases and supply chain challenges.

‘‘We have seen quite a marked weakening.’’ Kim Mundy, ASB economist