The New Zealand dollar <NZD=> hit one-week lows on Tuesday as risk-averse investors steered clear of high-yield currencies, and as the U.S. dollar reached its highest point in 2008 against a basket of currencies.

The kiwi showed little reaction to the Reserve Bank of Australia’s widely expected 25 basis point interest rate cut, with the bank giving no clear signal on the likelihood of follow up cuts [nSYD48228].

With the RBA opting not to go for a more aggressive easing, the New Zealand central bank is also likely to choose caution when it sets rates later this month, said Tim Kelleher at ASB bank.

“Next week is the key. Now that we’ve seen the Reserve Bank of Australia cut by 25 points, then it pretty much states the Reserve Bank of New Zealand will only go 25 as well,” Kelleher said.

At 0510 GMT the New Zealand dollar was at $0.6926/31 compared with $0.6958/62 in late local trading on Monday. It traded a local range of $0.6918 to $0.6960.

Only one out of 17 economists in a Reuters poll expected the Reserve Bank of New Zealand to cut rates by 50 basis points from the current 8 percent on Sept. 11, with the median risk of such a move put at 20 percent.

The remaining economists are all predicting a 25 basis point cut, with the New Zealand economy widely seen to be in its first recession in a decade in the first half of the year.

The New Zealand economy is seen returning to growth in the fourth quarter, but still-strong inflation pressures will see only a gradual easing in interest rates, private forecaster New Zealand Institute of Economic Research said [nWEL196449].

The U.S. dollar was at an eight-month high against a basket of currencies, as oil fell sharply on easing fears about the impact of Hurricane Gustav.

Persistent worries about global growth continued to sour sentiment on carry trades, where investors borrow in cheap currencies like the Japanese yen to buy high-yield ones like the Aussie and kiwi dollars.

The kiwi extended losses to near three-week lows against the yen around 74.60 <NZDJPY=R> on Tuesday.

New Zealand bonds inched higher, gaining from the drift to safer assets, with the yield on the benchmark 10-year government bond <NZ10YT=RR>, which moves inversely to the price, one basis point lower at 5.99 percent.

Source: http://www.afxnews.com

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