NZ dollar's continued fall boosts expectations for rate rise

The New Zealand dollar has tumbled to six-month lows against the US dollar and may fall further, giving the Reserve Bank of New Zealand room to raise interest rates again before the end of the year.

The kiwi has dropped about 5 per cent over the past month to 84 US cents, taking it to levels last seen before the Reserve Bank began rasing interest rates in March.

Analysts and traders say the recent fall has priced in expectations of slower interest rate rises and weaker dairy prices, but not higher US interest rates, which are expected next year.

On a trade-weighted basis, the kiwi has retreated from a post-float high of 82, hit last month, to 79.1 on Friday.

The index is below the central bank's quarterly projections for 79.7 in the third quarter, and fast nearing its projection of 79 for the fourth quarter.

"In isolation, if the currency falls at a faster pace than the [Reserve Bank] expected, or to a lower level than it expected, then there's a greater need of tighter policy in response to that," said Hamish Pepper, a currency strategist at Barclays Capital in Singapore.