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The New Zealand dollar fell to a 10-week low against its US counterpart after the country’s prime minister said he would welcome a cut in interest rates.

The Kiwi fell to its lowest level in 19 years against the Australian dollar and yields on New Zealand government bonds spiked.

Interest rate swaps fell, leaving the spread between the NZ two-year and its Australian equivalent at a record wide level of close to 200 basis points.

Although John Key, prime minister, held back from explicitly asking the country’s Reserve Bank to lower rates, he said markets were already pricing in a cut and that it would be his “expectation” for the bank to do so, given the risk of recession following last month’s earthquake in Christchurch. The government has already delayed and even cancelled some infrastructure projects to concentrate on rebuilding following the disaster.

“This added pressure for looser monetary policy has eroded the potential for any yield benefit to help prop up the Kiwi,” said Kathleen Brooks of Forex.com.

By late in the day in New York, the Kiwi was down 0.5 per cent to $0.7435 against the US currency, having hit a near three-month low of $0.7385.

Otherwise, it was another lower session for the US dollar – the currency still failing to gain any haven traction from risk aversion in other markets.

Sterling gained 0.4 per cent to $1.6331, closing back in on a 13-month high reached in the previous session, as purchasing managers reported robust activity in the construction sector in February. Sterling’s boost on Tuesday had come following similar strength in manufacturing PMI data.

The pound was down against the euro, which was stronger across the board as input prices in the region continued to put pressure on consumer price inflation. Annualised producer prices rose to 6.1 per cent in December, data showed.

The euro gained 0.3 per cent to £0.8491 against the pound and was up 0.7 per cent to a four-month high of $1.3867 versus the dollar. The dollar was also weaker against the Japanese yen, down 0.1 per cent to Y81.90.

Copyright The Financial Times Limited 2017. All rights reserved.

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