NZ dollar drops to 5-week low ahead of RBNZ as greenback surges

The New Zealand dollar dropped to a five-week low ahead of the Reserve Bank decision on interest rates today as the greenback surged to a 12-year high.

The kiwi touched 71.87 US cents, close to its February low of 71.74 cents, and was trading at 71.97 cents at 8am in Wellington, from 72.39 cents at 5pm yesterday. The trade-weighted index fell to 76.27 from 76.51 yesterday.

The dollar index, which measures the greenback against a basket of currencies, touched 99.985, its highest level since April 2003, as investors increase their US dollar weightings in anticipation of an interest rate hike in June. In New Zealand today, Reserve Bank governor Graeme Wheeler is expected to keep the benchmark interest rate unchanged, although he may lower the outlook for the rate in the future.

"US dollar strength was once again the dominant theme overnight," Bank of New Zealand senior market strategist Kymberly Martin said in a note. "The recent downshift in the New Zealand dollar likely not only reflects US dollar strength, but also expectation the RBNZ will present a softer tone and lower 90-day bank bill track at its meeting today."

The Reserve Bank monetary policy statement is released at 9am, followed by a press conference. Wheeler is also scheduled to appear before parliament's finance and expenditure select committee at 1pm.

Also scheduled for release in New Zealand today is the food price index for February and Real Estate Institute house sale data for February.

The New Zealand dollar slipped to 94.93 Australian cents from 95.20 cents yesterday, ahead of the release of Australian employment data for February today.

The kiwi advanced to 68.32 euro cents from 67.76 cents yesterday as the European common currency weakens amid a European Central Bank bond buying programme.

The local currency slipped to 87.42 yen from 87.87 yen yesterday and gained to 48.18 British pence from 47.99 pence.