NZ dollar drops against UK, US currencies

BNZ market strategist Jason Wong said the New Zealand dollar was likely to remain under pressure given the ongoing strength in the US dollar.

The New Zealand dollar has dropped to a seven-year low against the British pound and six-month low against the US currency, amid a global economic downturn.

BNZ market strategist Jason Wong says the New Zealand dollar is likely to remain under pressure given the ongoing strength in the US dollar, while weakness in China's economy has driven down commodity prices to three-year lows.

"China's data has disappointed to the downside and so their economy is really struggling and that's feeding into a lower commodity price environment.

"We've got a domestic economy facing recession-like conditions, and a Reserve Bank which feels like they've done enough work on (interest) rates.

"Put all those factors together, there's a lot of headwinds facing New Zealand at the moment."

Wong says the Kiwi dollar is likely to remain under pressure as long as the United States economy remained strong, with the US Federal Reserve signalling the possibility of further interest rate hikes, which are currently at their highest level in more than two decades.

While a low New Zealand dollar exchange rate usually benefited exporters, Wong says any gains are expected to be more than offset by weak commodity prices.

"At the same time, it is probably making inflationary pressure higher, which is certainly not something the economy needs right now."

The Kiwi dollar was 59.6 US cents, 92.2 Australian cents and 46.9 British pence in early local trading on Wednesday.

-Nona Pelletier/RNZ.

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