New Zealand dollar sinks to five-year low on rate cut

LONDON | By Anirban Nag

A woman counts Japanese 10,000 yen notes in Tokyo, in this February 28, 2013 picture illustration.

Reuters/Shohei Miyano

The New Zealand dollar slumped 2.5 percent against the U.S. dollar on Thursday, hitting a five-year low after the Reserve Bank of New Zealand surprised some by cutting interest rates and flagging the chance of more easing.The kiwi was on track for its biggest daily loss in four years, dropping to $0.6998 NZD=D4 in early London trade, with the RBNZ entering an easing cycle at a time when the Federal Reserve is looking to raise interest rates possibly later this year.
"The RBNZ move was a surprise and has taken a toll on the kiwi," said Geoff Yu, currency strategist at UBS, London.

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The U.S. dollar rose against a basket of currencies .DXY before U.S. retail sales data later in the day, and regained some poise against the yen.
It had lost 1.3 percent on Wednesday -- its
biggest one-day fall in six months -- as investors unwound short-yen positions following Bank of Japan Haruhiko Kuroda's comment that the yen was already "very weak".
The dollar traded at 123.40 yen JPY=, up about 0.4 percent on the day. The euro rose 0.2 percent to 139.14 yen EURJPY=R, following its biggest drop in over two months on Wednesday, as market participants tried to assess whether Kuroda's remarks should be taken more as an observation or a warning.
"Most people might think that Kuroda would like to slow the dollar/yen's moves, but I think it will go back to moving on fundamentals," said Masashi Murata, currency strategist at Brown Brothers Harriman & Co in Tokyo.
"The Fed is getting ready to hike rates, and there is some chance the BOJ will ease further. So this monetary policy divergence should support the dollar/yen in the medium term, maybe this summer," he said.
Traders said the market focus was shifting back to U.S. data with the release of the May retail sales report. Expectations are for a 1.1 percent rise in May from a month earlier and 0.7 percent rise, ex-autos. ECONUS
Many investors are of the view that the dollar needs support from robust U.S. data which in turn would convince the bond market that the Fed will be in a position to hike earlier than what is currently priced in.
The euro was down 0.4 percent at $1.1280 EUR=, but losses were limited by cautious optimism that Greece might be nearing a deal with its creditors and support from elevated Bund yields.
(additional reporting by Lisa Twaronite; Editing by)