The New Zealand dollar has fallen about half a US cent after tepid local inflation figures pushed out the likely timeline for future interest rate hikes and cleared the way for a lower currency.
The kiwi fell as low as 78.63 US cents from 79.09 cents immediately before the inflation data was released on Thursday morning, before recovering slightly to 78.71 cents by early afternoon.
Statistics New Zealand figures showed inflation was unchanged at 0.3 per cent in the three months ended September 30, slowing the annual pace to one per cent, just within the Reserve Bank's target band of between one and three per cent, and below analyst expectations for a 1.3 per cent rise.
"There's no need to hike rates any time soon and that frees up the RBNZ to focus on the unsustainable and unjustified currency," said Sam Tuck, senior FX strategist at ANZ Bank New Zealand,
Reserve Bank governor Graeme Wheeler on Thursday said the central bank has tried a number of exchange rate regimes over the past 40 years, which have largely unaffected the kiwi's medium-term level and volatility.
The bank has a mandate to intervene in foreign exchange markets when the currency is unjustifiably and unsustainably high, and has a material prospect of succeeding.
Westpac Banking Corp's New Zealand chief economist Dominick Stephens and economist Michael Gordon said in a note that the Reserve Bank would be "very nervous" about inflation falling to the bottom of the band.
The central bank next reviews the official cash rate on October 30.
"With the RBNZ in 'inflation watch' mode, and inflation at one per cent, it is safe to assume that the OCR will not rise for quite some time. We can expect next week's OCR review to be very dovish," they said.
Thursday's figures showed cheaper household contents and services and communication kept a lid on inflation, while food prices, which account for about 19 per cent of the CPI, were flat in the quarter.
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