SYDNEY (Reuters) - The New Zealand dollar skidded on Thursday after the country's central bank surprised the market by committing to holding rates at record lows until the end of 2020 as economic growth figures disappointed.
The New Zealand dollar <NZD=D3> sank as deep as $0.6665, the lowest since March 2016, breaking below critical support at $0.6688.
Against the Australian dollar <AUDNZD=R>, the kiwi dropped to a nine-month trough of NZ$1.1137.
The falls came after the Reserve Bank of New Zealand (RBNZ) said it will keep rates at 1.75 percent through 2019 and into 2020 as it cut next year's forecasts for economic growth to 2.6 percent from 3.1 percent.
The outlook was more dovish than the RBNZ's previous guidance when it predicted a small chance of a hike by September of next year.
The kiwi fell deeper into the red after RBNZ Governor Adrian Orr told Reuters in an interview the bank will provide further stimulus if economic growth deteriorated.
"Markets responded to the dovish signal ... There's scope for these reactions to be extended during the day, since the risks of a slower economy is a narrative which has only recently taken hold in markets but was confirmed by the RBNZ today," said Imre Speizer, head of NZ Strategy at Westpac.
Further weighing on the kiwi, New Zealand dairy giant Fonterra <GCF.NZ> requested a trading halt on its shares as it prepares its annual financial statements for the year-ended July 2018, raising fears earnings will disappoint.
Fonterra said it was working to determine whether its results are remarkably different from its previous guidance. Dairy generates more than 7 percent of New Zealand's gross domestic product so any moves in prices and output directly affect the kiwi.
Across the Tasman Sea, the Australian dollar <AUD=D3> was a tad weaker at $0.7427 but not too far from a one-week high of $0.7440 set on Tuesday.
Like its New Zealand counterpart, the Reserve Bank of Australia (RBA) is also widely expected to keep rates at record lows for some time yet as it awaits for a quickening in inflation and a drop in the jobless rate.
Current market expectations, however, are for cash rates to rise by the end of 2019.
The RBA will issue its latest economic forecasts on Friday.
New Zealand government bonds <0#NZTSY=> gained, sending yields more than 9-11 basis points lower at the long end of the curve.
Australian government bond futures rose, with the three-year bond contract <YTTc1> and the 10-year contract <YTCc1> up 2.5 ticks each at 97.910 and 97.345.
(Editing by G Crosse and Eric Meijer)
