By Rebecca Howard
Sept. 23 (BusinessDesk) - The New Zealand dollar hit a four-year low after the International Monetary Fund said downside risks to the domestic growth outlook have increased.
The kiwi was trading at 62.58 US cents at 7:45 am in Wellington versus 62.56 cents late Friday in New York. It touched a low of 62.50 cents, the lowest since September 2015. The trade-weighted index was at 69.64 from 69.63.
The IMF said that economic growth is expected to remain close to that of potential output but Kiwibank FX trader Mike Shirley said markets were spooked when it said “downside risks to the economic outlook in New Zealand have increased, however, reflecting higher downside risks to the global economic outlook.”
According to Shirley, “the market decided to accentuate the negative aspects… the New Zealand dollar went for a skate."
The IMF also said macroeconomic policy support is critical.
“With downside risks to growth, employment, and inflation, insufficient monetary accommodation still is a bigger concern than the upside risk to inflation if the monetary policy stance were to turn out to be too expansionary,” it said.
"With the policy rate approaching its effective lower bound, the RBNZ will likely have to resort to an unconventional monetary policy response."
It also underscored that the government “should not hesitate to use New Zealand’s substantial fiscal space to support activity in the event of an economic downturn.”
ANZ Bank FX/rates strategist Sandeep Parekh said the kiwi also came under pressure when global sentiment turned negative after news that China’s trade delegation had cancelled plans to visit farms in the US and as US President Donald Trump said he wants a “complete deal,” as opposed to a partial deal.
Markets will now shift their attention to this week’s central bank monetary policy decision and short statement. Economists polled by Bloomberg expect the Reserve Bank to keep rates on hold at 1 percent on Wednesday. The focus, therefore, will be on the wording of the statement, widely expected to keep the door open for another rate cut this year.
The kiwi was trading at 92.33 Australian cents from 92.41. It was at 50.21 British pence from 50.15, at 56.81 euro cents from 56.76, at 67.42 yen from 67.28 and at 4.4382 Chinese yuan from 4.4361.